Yen falls most in two months against dollar on election outlook

Won, Peso

South Korea’s won rose against all its major counterparts and climbed to a 14-month high against the greenback. It gained 0.4 percent to 1,085.05 per dollar. Bank of Korea Governor Kim Choong Soo said at a forum in Seoul today domestic economic growth will “bounce back” next year as global conditions improve.

Mexico’s peso was 0.4 percent stronger at 13.1967 per dollar.

Implied volatility of three-month options for Group of Seven currencies slid to 7.2 percent today, matching the lowest since October 2007, according to the JPMorgan G7 Volatility Index. A decrease in price fluctuations makes investments in currencies with higher lending rates more attractive because the risk becomes smaller that market moves will erase profits.

Speaking in Japan’s parliament a day after the DPJ agreed with the two main opposition parties on legislation to fund the rest of this year’s budget, Noda said he would dissolve the lower house on Nov. 16 if a deal is reached to cut the number of lawmakers in the chamber. Shinzo Abe, head of the Liberal Democratic Party and a former prime minister, said he agreed.

Japan Deflation

The BOJ increased its asset-purchase program by 11 trillion yen to 66 trillion yen ($822 billion) on Oct. 30, saying the central bank and the government will make the “utmost” efforts to overcome deflation. Governor Masaaki Shirakawa and his board next meet on Nov. 19-20.

A stronger yen makes Japanese products costlier overseas, reducing the competitiveness of domestic exporters, while it cuts the value of income earned abroad when repatriated. The yen is 6 percent from its post-World War II record high of 75.35 against the dollar reached Oct. 31, 2011.

The U.K. currency slipped 0.3 percent to 80.28 pence per euro, after reaching 80.38 pence, the weakest level since Nov. 1 after the Bank of England said the U.K. economy may shrink in the current quarter.

“The weaker gross domestic product profile reflects the judgment that the broader causes and repercussions of the financial crisis may bear down more forcefully on demand and productivity than assumed” previously, the central bank said in its quarterly Inflation Report published in London today. “There seems a greater risk that the U.K. economy may be in a period of persistent low growth.”

Bloomberg News

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