LONDON: The dollar climbed to a seven-year high against the yen on Tuesday after a Japanese government official told Reuters that Prime Minister Shinzo Abe was likely to delay a planned sales tax increase.
The comments came as momentum appeared to be building for Abe to delay the painful measure because of the fragility of Japan's economy and call a snap election, with major parties scrambling to prepare for a possible campaign. s
The dollar hit 116.02 yen on trading platform EBS, up 0.9 percent up on the day and its highest level since October 2007.
Japan's Nikkei index climbed to a seven-year high after the government official's comments, also boosted by a renewed appetite for risk across markets.
Simon Derrick, head of currency research at Bank of New York Mellon in London, said the yen was also being hit by the Japanese central bank's announcement on Oct. 31 that its stimulus programme was to expand, as well as the government pension fund's asset reallocation to foreign holdings.
"Here we are in the middle of Abenomics ... and all of a sudden we seem to have complete confusion," he said.
The dollar had already made significant gains overnight as openness to risk lifted U.S. Treasury yields and propelled Wall Street stocks to record highs.
The greenback had dropped to 113.86 yen after U.S. non-farm payroll (NFP) data on Friday failed to live up to more optimistic expectations.
The market is now looking ahead to a batch of key U.S. data releases late this week that may further underscore the brighter U.S. economic outlook relative to Europe and Japan, including retail sales and consumer sentiment.
"Dollar buyers took advantage of the post-NFP dip to build on longs," Elsa Lignos, senior currency strategist at RBC Capital Markets, wrote in a note to clients, adding that she expected the dollar to strengthen this week.
The euro traded 0.1 percent down at $1.2409, keeping some distance from a two-year trough of $1.2358 touched last week.
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