Investing.com - The dollar was steady close to seven-year highs against the yen on Tuesday, amid growing expectations that Japanese Prime Minister Shinzo Abe would announce snap elections and delay a planned sales tax hike, one day after data showing the country’s economy fell back into recession.
USD/JPY was at 116.58, almost unchanged for the day and holding just below Monday’s peaks of 117.04.
Data on Monday showed that Japan’s economy contracted by an annualized 1.6% in the third quarter, compared to forecasts for growth of 2.5%.
The yen fell to its lowest level since October 2007 immediately following the release of the report, before coming off those lows as the Nikkei dropped sharply.
Prime Minister Abe was expected to announce later Tuesday that a sales-tax increase due to come into effect next year would be delayed and to call for elections to be held next month.
Investors were also looking ahead to the Bank of Japan’s policy statement on Wednesday after the central bank surprised markets by expanding its asset purchasing stimulus program last month.
The euro pushed higher against the yen, with EUR/JPY up 0.27% to 145.58, not far from Monday’s six year highs of 146.51.
In the euro zone, European Central Bank President Mario Draghi reiterated Monday that the bank was willing to implement additional stimulus measures to prevent low levels of inflation from becoming entrenched.
In testimony to the European Parliament Mr. Draghi said the central bank could expand its asset purchase program to include government bonds.
The euro also pushed higher against the dollar, with EUR/USD rising 0.29% to 1.2485.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, slid 0.21% to 87.82, holding below Friday’s more than four-year highs of 88.36.