The dollar surged to a fresh seven-year high against the yen on Monday after Japan's third quarter GDP unexpectedly contracted, giving the Japanese prime minister a strong excuse to call a snap election and delay a planned sales tax hike. The dollar rose to a peak of 117.06 yen, its highest since October 2007. The yen has lost ground against the dollar this month partly on speculation that a victory by Prime Minister Shinzo Abe at the polls could lead to a second round of reflationary policies. Japan's economy unexpectedly shrank an annualised 1.6 per cent in July-September after a severe contraction in the previous quarter.
Dollar gets lift from strong US retail data, yen decline
The dollar rallied on Friday, helped by unexpectedly strong US retail sales data and a slide in the yen to seven-year lows against the dollar on bets Japanese Prime Minister Shinzo Abe will call early elections and delay a sales tax increase. The euro also fell against the dollar and briefly dipped below $1.24, at $1.2399, despite better-than-expected euro zone economic growth numbers. The currency, which traded near $1.40 in May, is now close to two-year lows and was last off 0.55 percent at $1.2406.The dollar index added to gains after a US retail sales report bolstered views of a strengthening US economy. The index was last ahead 0.60 percent after touching 88.267, a high last seen in June 2010, according to Reuters data. The US Commerce Department said retail sales rose 0.5 percent last month when stripping out volatile elements such as gasoline and food services. That was the biggest increase since August and ahead of forecasts for a 0.4 percent gain. "All supportive of growth going forward (and) suggesting consumers are spending what they are saving at the gas pump," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. Japan's yen was already down in overseas trading and touched a fresh seven-year low of 116.82 yen to the dollar immediately after the release of the US data. It was last at 116.62, or off 0.75 percent for the session. The yen has taken only a month to notch up a 10 percent drop, hit by a rallying dollar, a reallocation of Japan's government pension holdings away from domestic assets, the expansion of a stimulus program, and now a likely delay in raising the country's sales tax . The first increase in the two-stage sales tax hike, which came in April, sent the economy into a slump. Japanese companies overwhelmingly want the next stage to be postponed or scrapped, a Reuters poll showed on Thursday. Data showed the euro zone expanding by 0.2 percent in the third quarter, compared with the previous three months, with Germany just managing to avoid a recession.
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