FOREX-Yen falls to 20 month low on new prime minister, euro firmer

27/12/2012 14:25 AST

The yen slumped to a 20-month low against the U.S. dollar and a 16-month trough versus the euro on Wednesday, after Shinzo Abe assumed office as Japan's new prime minister and reiterated his pledge to push for more drastic monetary and fiscal measures and tame the strong Japanese currency.

Meanwhile the euro traded above $1.32 against the U.S.

dollar for a seventh straight session and in early New York trading was up slightly on the day. Traders said the euro's gain was due to position adjustment going into the end of the year, with investors continuing to reduce short bets on the currency.

Overall trading volume was thin with many global financial centers still closed for the Christmas holiday. All G10 markets except Japan were closed on Tuesday, and only Japanese and U.S. markets were to open on Wednesday. Hong Kong and Australia also remained closed on Wednesday.

New Japan prime minister Shinzo Abe said on Wednesday his government will pursue bold monetary policy, a flexible fiscal strategy, and a growth plan to encourage private investment . Abe, whose party won a landslide victory on Dec. 16, was elected prime minister by parliament's lower house on Wednesday.

"The election of Abe has had a galvanizing effect on the dollar/yen exchange rate and he has been able to accomplish more in two months of jawboning than the BoJ has...over the past several years," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

The yen was further weighed down by minutes of the Bank of Japan's November policy meeting released on Wednesday which showed some board members considered policy options if the outlook for the economy and prices were to worsen.

One board member even suggested that the BoJ commit to buying assets in an open-ended manner, without setting a strict deadline, until it achieved its 1 percent consumer inflation target.

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Reuters