FOREX-Yen rises after Japan vote; euro up on Portugal optimism

Mon Jul 22, 2013 4:31pm EDT

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* Japan's ruling coalition wins upper house majority
    * Result broadly in line with expectations
    * Euro rises to one-month high vs dollar

    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 22 (Reuters) - The yen rose against the
dollar for the first time in four sessions on Monday after
Japanese Prime Minister Shinzo Abe won a widely expected victory
in elections for parliament's upper house.
    Investors had already priced in Abe's victory and had sold
the yen against the dollar ahead of the outcome, and market
participants locked in profits as a result. The victory
represents a rare bout of political stability in Japan and
strengthens the mandate for Abe's reflationary policies.
    The euro, meanwhile, rose to a one-month high versus the
dollar after Portuguese President Anibal Cavaco Silva said the
current government will stay in office to keep an international
bailout on track.
    But it was the yen that grabbed the headlines in the
currency market. Although Abe's victory affirmed Japan's
aggressive monetary easing, some analysts said that at this
point, there is not much the government can do to stimulate the
economy.
    "Primarily, the yen's rise against the dollar was a
buy-the-rumor, sell-the-fact kind of thing," said Vassili
Serebriakov, currency strategist at BNP Paribas in New York.
"But at the end of the day, Japan can only do so much to lift
its economy, and the dollar's upside could be limited."
    In late afternoon trading, the dollar was down 1.1 percent
at 99.53 yen, closer to the session low of 99.28 than the
session peak of 100.71 yen. Volume on the pair totaled around
$1.7 billion on the Reuters trading platform.
    The dollar, however, was still up around 15 percent versus
the yen for the year as the Bank of Japan opted for
unprecedented monetary stimulus to jump-start the economy. The
yen remains the worst-performing currency year to date of the 36
most active currencies traded against the dollar, using Reuters
data.
    The euro also fell against the yen, to 131.22 yen,
down 0.6 percent, having risen to a two-month high of 132.43
earlier.
    Still, many investors view the yen's bounce as temporary
with a dip in the dollar seen as a buying opportunity, traders
said. Speculators remained long the dollar against the yen going
into the election and that was not forecast to change after
Abe's win. 
    Analysts said the election result would also increase
Japanese investor conviction about the success of Abe's reforms,
potentially driving them to seek higher yields overseas.
    With the focus on the Japanese election now over, attention
will turn back to the United States and the direction of the
dollar against the yen for the rest of the week will likely be
driven by U.S. economic data, said Boris Schlossberg, managing
director of FX Strategy at BK Asset Management in New York. 
    The dollar earlier extended losses against the yen after
data showed U.S. existing home sales for June fell 1.2 percent
rather than the 0.6 gain expected. But a surge in prices to a
five-year high suggested the housing market recovery remained on
course. 
    "We find ourselves in an environment where sub-par numbers
on U.S. activity and inflation are being viewed as a positive
for risk appetite, as they further postpone an eventual
withdrawal of liquidity by the Fed," said Samarjit Shankar,
director of market strategy at BNY Mellon in Boston.
    Most riskier currencies rallied on Monday, with the
Australian and New Zealand dollars as well as sterling up on the
day.
    The euro was up 0.3 percent at $1.3186, after earlier
rising to a one-month high of $1.3218, with investors relieved
by a drop in Portuguese bond yields. Turnover on the
euro/dollar pair was $3.7 billion on the Reuters FX platform.
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