Yen dips as Yoshihiko Noda proposes snap elections

Japanese Yen v US Dollar

Last Updated at 08 Sep 2014, 08:46 ET JPY:USD one month chart
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Japan's yen has fallen after Prime Minister Yoshihiko Noda said he was set to dissolve parliament and hold a snap election.

It fell as low as 80.83 yen against the US dollar, a six-and-a-half month low.

There is no guarantee the government would win an election, and the opposition has called for aggressive monetary easing by the central bank.

Its leader, Shinzo Abe, has said the bank should print "unlimited yen" to help fight deflation.

Analysts said such a move would weaken the yen even further.

"It is very likely that the Liberal Democratic Party will take over the lower house again, and very clear that they will be pressuring the Bank of Japan to become more dovish," said Geoff Kendrick, a currency analyst at Nomura.

"We are expecting the dollar/yen to head up to around 82 yen by the end of the year."

Mr Noda is expected to formally announce the elections on Friday.

However, Mr Noda indicated that his call for a snap election was conditional on opposition support for a financing bill and voting reform.

Economic issues

Start Quote

If we take power, we'd like to do our utmost to beat deflation”

End Quote Shinzo Abe Liberal Democratic Party

Mr Noda's proposal for a snap election comes amid fears that Japan's economy may be heading back into a recession.

The economy contracted by 0.9% in the July to September quarter, from the previous three months. Most analysts have forecast that it may shrink further in the current quarter.

Japan's exports, one of the biggest drivers of growth, have been hurt by a slowdown in key markets such as the US and Europe.

Meanwhile, policymakers have found it increasingly tough to boost domestic consumption, as they continue to fight deflation or falling consumer prices, which tend to make customers put off their purchases in hope of a better deal down the road.

Mr Abe, the leader of the Liberal Democratic Party (LDP), has said that the bank of Japan (BOJ) needed to set an inflation target of 3% instead of its current 1% goal to help revive growth in the economy.

"If we take power, we'd like to do our utmost to beat deflation," Mr Abe said. "In doing so, monetary policy would be key."

He indicated that if elected, he would review the BOJ law that guarantees its independence from the government.

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