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Yen skids to 20-month low against dollar after LDP victory

Bloomberg

The yen fell to its weakest level versus the dollar since April 2011 after Shinzo Abe’s Liberal Democratic Party swept back to power in Sunday’s election, giving him a chance to act on pledges of expanded fiscal and monetary stimulus.

The yen tumbled to an almost nine-month low against the euro after the LDP won 294 seats in the 480-member Lower House, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-fourths of its lawmakers.

Tokyo stocks rose and government bonds slid.

The dollar was supported as uncertainty over U.S. budget negotiations boosted demand for the relative safety of the world’s reserve currency.

The election results mean “the monetary policy Abe has been advocating will become a real possibility,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA.

“The market may try to weaken the yen beyond the psychological level of 85″ per dollar, Saito said.

The yen declined to as low as 84.48 per dollar, the weakest since April 12, 2011. It was at 84.01 as of 1:05 p.m. in Tokyo, 0.6 percent below its close in New York on Dec. 14.

Japan’s currency fell 0.5 percent to 110.52 per euro, after touching 111.32, the weakest since March 21.

The dollar rose 0.1 percent to 1.3155 per euro.

The Nikkei 225 stock average closed 91.32 points higher on Monday at 9,828.88, its best finish since April 3.

Abe has called for a doubling of the Bank of Japan’s inflation goal to 2 percent and for unlimited easing to revive economic growth.

The central bank, which last month refrained from expanding its ¥66 trillion asset-purchase program, is scheduled to hold a policy meeting Wednesday and Thursday.

BOJ Gov. Masaaki Shirakawa, criticized by a number of lawmakers for his perceived failure to reverse more than a decade of deflation, ends his five-year term on April 8.

The LDP’s alliance partner, New Komeito, won 31 seats, giving the coalition a two-thirds majority that will enable it to override most decisions by the Upper House, where the DPJ is the largest party.

The yen has lost 5.6 percent in the past month, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 2.1 percent, while the euro gained 1.5 percent.

The Nikkei rallied more than 9 percent over the same period.

“Even if monetary easing expectations don’t bring about further weakness in the yen, higher stock prices on the back of hope for an economic recovery may push the currency lower,” Yuji Kameoka, chief currency strategist at Daiwa Securities Co., Japan’s second-biggest brokerage, wrote in a note to clients Monday.

Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain — so-called net shorts — was 94,401 on Dec. 11, compared with net shorts of 90,326 a week earlier.

The greenback rose against Australia’s dollar and other higher-yielding currencies as U.S. budget negotiations continued.