LONDON: The dollar moved towards a recent seven-year high against the yen on Thursday, driven by speculation that Japanese Prime Minister Shinzo Abe will call a snap election in December.
Abe would be likely to be returned to power with a bigger mandate, which analysts believe he would use to implement a second round of reflationary policies and possibly delay a planned sales tax hike.
That has spurred a rally in Japanese stocks and weighed on the yen. The dollar was up 0.2 percent at 115.70 yen , nearing the seven-year high of 116.11 yen notched on Tuesday. The euro rose 0.4 percent to 144.15 yen.
"Dollar/yen is headed higher and all those who missed the bus at lower levels will use the political developments to build long dollar positions," said Geoff Yu, strategist at UBS.
A senior figure in Abe's ruling party told reporters it appeared the premier has decided to call an election. Abe is expected to make his decision depending on the strength of economic indicators, with third quarter gross domestic product data due on Monday.
The market is also awaiting in U.S. data in the shape of Thursday's jobless claims and Friday's retail sales. Those numbers may reinforce perceptions that the U.S. economy is doing better than Europe or Japan, helping to push the dollar higher against the euro and yen.
The Australian dollar fell after an official at the Reserve Bank of Australia said it had not ruled out intervening to sell the currency, which it views as overvalued. The Aussie recovered later to trade at $0.8722, flat on the day, but traders were cautious.
"If the general dollar strength does not ensure that the Australian dollar is capped then the RBA will no doubt do so," said Thu Lan Nguyen, a currency strategist at Commerzbank.
Another currency on intervention watch was the Swiss franc, which traded near a two-year high of 1.2018 francs per euro , not far from the cap of 1.20 francs that the Swiss National Bank imposed more than three years ago.
Market players said one factor influencing trade in the currency pair was a Nov. 30 referendum on the SNB's gold reserves which, if passed, would severely curtail the bank's freedom to conduct monetary policy.
Recent polls suggest the referendum is unlikely to pass.
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