FOREX-Yen slides after call for sub-zero lending rates
* Next potential leader of Japan calls for weaker yen
* Euro inches up vs dollar, helped by yen selling
* Australian dollar hits 2-wk low versus U.S. dollar
LONDON, Nov 15 (Reuters) - The yen hit its lowest level against the dollar since late April on Thursday and looked vulnerable to more losses after the head of Japan's main opposition party called for a move towards negative interest rates.
The euro rallied to a two-week high against the yen and also rose against the dollar, despite data showing the euro zone slid into recession in the third quarter of 2012.
Shinzo Abe, the head of Japan's Liberal Democratic Party and frontrunner in next month's election, wants the Bank of Japan to consider sub-zero interest rates and reverse the yen's strength.
Signs that the LDP will step up efforts to weaken the yen if it comes to power prompted investors to sell the currency against both the dollar and the euro.
The dollar rose more than 1.2 percent on the day to 81.24 yen, its highest since April 27 and well above last week's low of 79.07 yen.
"The weakness in the yen is evidence that the market is pointing to the Bank of Japan's potential to become more dovish," said George Saravelos, G10 FX strategist at Deutsche Bank.
"Our forecast is for 82-83 yen for the year end," he added.
The yen has fallen heavily since Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election in December.
Abe, a vocal critic of the BOJ, has called for a new 3 percent inflation target, three times the current goal, and for the bank to take bolder action to fight deflation.
Investors are also concerned the LDP may be less committed to fiscal belt-tightening measures, such as planned tax hikes, than Noda's party, adding to caution about the yen.
The euro rose 1.3 percent to 103.54 yen as investors unwound short euro positions taken earlier this week on concerns about when Greece will receive its next tranche of financial aid.
The euro also edged up 0.15 percent to $1.2755, recovering from Tuesday's two-month low of $1.2661. Resistance was expected at $1.2812, the 200-day moving average.
Traders cited buying by European corporates earlier in the session that helped lift the euro.
The single currency looked vulnerable with concerns about slowing growth in the euro zone and uncertainty over aid for Greece and Spain seen by analysts as likely to cap gains.
But some analysts said investors were wary of selling the euro heavily in case policymakers surprised markets with decisive action to tackle the debt crisis.
"They don't want to sell into it too aggressively in case there's a policy response from the European Central Bank that would see people get stopped out of shorts," said Geoffrey Yu, currency strategist at UBS.
"But there are plenty of structural problems out there so people do not want to go long either."
Worries about how U.S. lawmakers can compromise over the federal budget to avert looming spending cuts and tax rises that could tip the economy into recession also curbed the appetite for perceived riskier currencies.
The Australian dollar fell to a two-week low of US$1.0330, its lowest level since Oct. 30.
Meanwhile sterling hit a two-month low of $1.5828 after a surprise fall in UK retail sales in October reinforced gloomy views on the UK economy.
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