* Front runner in Japan's election calls for weaker yen
* Euro inches up vs dollar, helped by yen selling
* IMF suggests Europe do more to held Greece
* U.S. fiscal crisis likely to sway dollar price action
By Julie Haviv
NEW YORK, Nov 15 The yen shed more than 1
percent of its value against the dollar for a second straight
session on Thursday, reaching its lowest level in nearly seven
months on expectations that the Bank of Japan will become more
forceful in its policy action.
The dollar posted its largest gain against the yen since
mid-September after Shinzo Abe, the head of Japan's Liberal
Democratic Party and front runner in next month's election, said
he wants the Bank of Japan to consider sub-zero interest rates.
Abe, pushing the central bank for bold easing steps, told
reporters he wants to work with the BOJ to reverse the yen's
strength, which he said hurts the competitiveness of small
The correlation of dollar/yen rate differentials broke down
and volatility in the currency pair spiked.
"The catalyst has clearly been politics, including a further
step up in political pressure on the BoJ to ease aggressively,"
said Jens Nordvig, global head of G10 strategy at Nomura
Securities in New York.
"We have been positioned for this trade in both spot and
options, and the question now is how to balance short-term and
medium-term considerations," he said.
The dollar rose to 81.45 yen, its highest level since
April 25. It last traded at 81.16, up 1.2 percent on the day.
That followed a gain of 1.1 percent the previous day.
Nomura's Nordvig said the "new BoJ" theme, and changing
long-term flows, are key reasons his firm forecasts 85 for
dollar/yen in early 2013.
"But in the short term, we see more two-way risk, including
from Japanese event risk from the BoJ meeting and the trade
release next week," he said.
The euro, meanwhile, rallied to a two-week high against the
yen, and also rose against the dollar, despite data showing the
euro zone slid into its second recession since 2009 in the third
quarter of 2012.
"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
"Our forecast is for 82-83 yen for the year-end," he added.
Nevertheless, the Bank of Japan is expected to hold its fire
at a meeting of its policy board next week and may also defy
market expectations for action in December.
The yen has fallen heavily since Japanese Prime Minister
Yoshihiko Noda indicated he would call a snap election in
The euro hit a high of 103.98 yen and last traded
at 103.74, up 1.5 percent, as investors unwound short
euro positions taken earlier this week on concerns about when
Greece will receive its next tranche of financial aid.
The International Monetary Fund has done what it can to help
Greece reach debt sustainability, an IMF spokesman said, leaving
the window open for further action by the indebted country's
The IMF has clashed with Greece's other lenders, the
European Central Bank and the European Commission, over how to
make Greece's debt mountain manageable. [ID:nL5E8MFDLV
Meanwhile, the European Union's top economic official sought
to rule out any write-off of Greece's debt to governments on
Thursday after a European Central Bank policymaker said for the
first time that a "haircut" on part of it was probable.
EURO RISES FROM TW0-MONTH LOW
The euro last traded up 0.4 percent at $1.2782,
recovering from Tuesday's two-month low of $1.2660. 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."
While U.S. data influences dollar price action, the
greenback will more likely be swayed in the coming weeks by
whether politicians in Washington can agree on a debt and
deficit reduction deal by the end of the year.
An agreement needs to be made by the end of the year to
avoid the so-called U.S. "fiscal cliff," which entails massive
tax increases and spending cuts that many say could send the
economy back into a recession.
Brinkmanship in Washington over the coming weeks should spur
market uncertainty that should benefit the dollar due to its
safe-haven status. The greenback should also benefit should the
fiscal cliff scenario come to fruition.
The number of Americans filing new claims for jobless
benefits surged last week to a 1 1/2-year high. Separate data
showed U.S. consumer prices rose in October and a gauge of
manufacturing in New York state showed that activity slowed in
November for a fourth straight month.
Meanwhile, factory-sector sentiment dropped in the U.S.