* Japan's ruling coalition wins upper house majority
* Result broadly in line with expectations
* Yen dips initially but later bounces in choppy trade
NEW YORK, July 22 The yen climbed on Monday
after Japanese Prime Minister Shinzo Abe, as expected, won a
decisive victory in elections for parliament's upper house,
prompting some investors to sell dollar positions which had
already priced in the win.
Abe's win may herald a rare bout of political stability in
Japan and strengthens the mandate for his reflationary policies.
Expectations are strong that the result will pave the way for
the government to pursue pro-growth fiscal policies and
structural reforms alongside the central bank's aggressive
This may make the yen's bounce 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.
"The combination of 'sell the news dynamic' along with very
illiquid summer markets in Asia caused a plunge in dollar/yen,"
said Boris Schlossberg, managing director of FX Strategy at BK
Asset Management in New York. "With the focus on the Japanese
election now over, attention will turn back to the U.S. and the
direction of the pair for the rest of the week will likely be
driven by US economic data."
The dollar was down 0.8 percent at 99.85 yen, closer
to the session low of 99.61 than the session peak of 100.71 yen.
Even after Monday's fluctuations, the dollar is up around 15
percent versus the yen for the year as the Bank of Japan opted
for unprecedented monetary stimulus to kick-start the economy.
The yen remains the worst-performing currency year to date of
the 36 most active currencies traded against the dollar, using
Analysts said the election result would also increase
Japanese investor conviction about the success of the reforms,
potentially driving them to seek higher yields overseas.
"Japanese portfolio outflows is what will drive the yen
lower in coming months, supported by expectations of Fed
tapering. Confidence from this victory can be constructive but
these outflows will be a slow moving process," said Ned
Rumpeltin, head of G-10 FX strategy at Standard Chartered Bank
"While in the near term we could still see some long dollar
positions being trimmed, in the medium term we remain bearish of
the yen. Abe has to walk the walk and satisfy sceptics who are
questioning if he can deliver on structural reforms."
The euro was down 0.4 percent at 131.46 yen,
having risen to a two-month high of 132.43 earlier.
The euro rose 0.2 percent to $1.3163, with investors
relieved by a drop in Portuguese bond yields after
President Anibal Cavaco Silva said on Sunday he wanted the
centre-right coalition to stay in place to keep an international
bailout on track.