NEW YORK: The Japanese yen steadied against the U.S. dollar on Monday, coming off seven-year lows after Japan's economy unexpectedly slipped into recession in the third quarter.
Japan's economic shock sets the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.
Uncertainty around these events is likely to keep the Japanese currency volatile, though the yen may gain if stocks decline. The yen normally tends to rise as Tokyo's stock market falls.
"There are going to be quite a few things for the market to digest and we could see a fall in stocks and strengthening in the yen," said Martin Schwerdtfeger, a foreign exchange strategist at TD Securities in Toronto.
The U.S. dollar was last at 116.41 yen, after earlier rising as high as 117.04 yen.
The dollar also gained against the euro after European Central Bank Executive Board member Yves Mersch said that the ECB could theoretically extend purchases to gold, shares, or exchange traded funds (ETFs) or other assets if more action is needed to stimulate the region's economy.
"Because these were part of his prepared remarks that he was planning to convey to the market, and didn't come out of a Q&A, that put a bit of pressure on the euro," Schwerdtfeger said.
Over the last couple of months, the ECB has launched several measures to revive the lackluster euro zone economy and Mersch also said the bank should let these steps take effect first before considering more action, while warning of dangers from bond purchases.
The dollar extended gains against the euro after data showed that U.S. manufacturing output rose in October, though a third straight month of declines in motor vehicle production suggested some slowdown in the pace of factory activity.
The euro was last US $1.2471 dollars, down from $1.2577 dollars earlier on Monday.
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