November 14, 2012 / 7:46 AM / in 5 years

FOREX-Yen falls as Japan PM Noda hints at early election

* Japan PM Noda says open to dissolving parliament on Friday

* General election likely to follow soon afterwards

* Dollar/yen, euro/yen surge after Noda’s comments

By Masayuki Kitano

SINGAPORE, Nov 14 (Reuters) - The yen fell broadly on Wednesday after Japanese Prime Minister Yoshihiko Noda said he was open to dissolving the lower house of parliament later this week and to hold elections next month.

Noda told parliament he would be willing to dissolve parliament on Nov. 16 and hold elections in December if the opposition agreed to pass reforms to the electoral system.

The prospect of an early election is regarded as negative for the yen, as the most likely victor would be the main opposition Liberal Democratic Party and an LDP-led government would probably put pressure on the Bank of Japan to ease monetary policy.

Shinzo Abe, the LDP’s leader, said last week that the BOJ should continue monetary easing until it achieved 3 percent inflation. The central bank had set a 1 percent inflation target in February.

Market players are also worried that the LDP may be less committed to fiscal belt-tightening measures such as planned tax hikes than Noda’s ruling Democratic party.

“The yen could weaken for both of those reasons,” said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.

The yen slid following Noda’s comments.

The dollar rose 0.6 percent to 79.86 yen and the euro climbed 0.7 percent on the day to 101.53 yen.

A recent Japanese media poll showed that Japan’s ruling Democratic party was headed for a drubbing, with voter support for Noda’s government at its lowest since he took office last year.

The euro inched up 0.1 percent versus the dollar to $1.2714 , hovering near a two-month low of $1.2661 set on Tuesday, when the euro fell on weak German economic sentiment data.

Uncertainty over when international lenders may agree to release the next tranche of aid for Greece have also weighed on the euro.

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