Investing.com - The U.S. dollar was steady near seven-year peaks against the yen on Tuesday after Japanese Prime Minister Shinzo Abe called snap elections and delayed a planned sales tax hike a day after data showing the economy fell back into recession in the last quarter.
USD/JPY hit highs of 117.04, the most since October 2007 and was last at 116.59, almost unchanged for the day.
Prime Minister Abe called for snap elections to take place next month, to seek a fresh mandate for his economic policies, which call for a weaker yen. In addition, the prime minister announced plans to delay a planned sales tax hike due to take place next October after an increase in April of this year played a part in plunging Japan into a recession in the third quarter. He also announced a fresh package of tax and spending measures designed to bolster growth in the short term.
The announcement came one day after data showed that Japan’s economy unexpectedly contracted by an annualized 1.6% in the third quarter, after a 7.3% contraction in the previous quarter.
Investors were looking ahead to the Bank of Japan’s policy statement on Wednesday after the central bank surprised markets by expanding its asset purchasing stimulus program last month.
The yen fell to six year lows against the euro, with EUR/JPY touching highs of 146.70, before pulling back to 146.03, up 0.57% for the day.
The single currency was boosted after the ZEW Centre for Economic Research said that its index of German economic sentiment rose to a four month high of 11.5 this month from minus 3.6 in October.
The report said that recent growth figures indicated that the euro area’s largest economy is stabilizing, but warned that ongoing geopolitical tensions continue to be a risk.
Expectations for more stimulus measures from the European Central Bank remained high after President Mario Draghi said Monday that it could expand its asset purchase program to include government bonds.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, was down 0.33% to 87.71, holding below Friday’s more than four-year highs of 88.36.
In the U.S., data on Tuesday showed that producer prices rose unexpectedly rose last month, alleviating concerns over sluggish inflation.
The producer price index rose 0.2% in October, compared to forecasts for a 0.1% decline, after falling 0.1% in September.
Producer prices were up 1.6% on a year-over-year basis, ahead of forecasts for a 1.2% increase.