The New Zealand dollar soared to the highest in more than seven years against the yen on reports Prime Minister Shinzo Abe will call a snap election, seeking a mandate for further economic reforms including an increase in sales tax.
The kiwi touched 90.33 yen, its highest level since October 2007, and was trading at 90.21 yen at 8am in Wellington, from 89.06 yen at 5pm yesterday. The local currency advanced to 78.09 US cents from 77.48 cents yesterday following the Nov. 11 Veterans Day US public holiday.
The yen weakened as speculation mounts that Japan's Abe may call a snap poll before the end of the year to seek a mandate for a planned second increase in the country's sales tax to 10 percent from next October. The tax rate was first raised to 8 percent in April as part of a broader plan to rebalance the economy. While an election is not required until 2016, commentators say Abe may seek voter support for the unpopular tax hike while the opposition is fragmented.
"The idea is that he would go to a snap election to make sure he has still got a mandate to continue with the policies of Abenomics," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand. "The markets appear to have taken that one directionally, that he will get the mandate which will increase their ability to enact the difficult policy reform that is necessary for the rebalancing of the Japanese economy. All the political commentators are saying that it is a good time to go and a good time to cement and increase gains."
The economic reform policies, known as Abenomics, have a side impact of weakening the yen, ANZ's Tuck said.
