Investing.com - The dollar firmed against the yen on Tuesday after Japanese Prime Minister Shinzo Abe called for early elections to push through his economic reforms, which call for a weaker currency to spur growth.
In U.S. trading, USD/JPY was up 0.11% at 116.78, up from a session low of 116.35 and off a high of 117.04.
The pair was expected to test support at 115.44, Monday's low, and resistance at 117.06, Monday's high.
Prime Minister Abe called for snap elections to take place next month to seek a fresh mandate for his economic policies, which call for a weaker yen.
Furthermore, the prime minister announced plans to delay a planned sales tax hike due to take place next October after an increase in April of this year played a part in plunging Japan into a recession in the third quarter.
He also announced a fresh package of tax and spending measures designed to bolster growth in the short term.
The announcement came one day after data showed that Japan’s economy unexpectedly contracted by an annualized 1.6% in the third quarter after a 7.3% contraction in the previous quarter, which puts the country in a recession.
Investors were 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.
Still, recent market talk of Japan's snap elections sent the dollar to seven-year highs against the yen, leaving many investors to sell the greenback on the actual news of the event and scoop up nicely-priced yen position, which capped the pair's advance despite upbeat U.S. data.
The Commerce Department reported earlier that producer prices inched up by a seasonally adjusted 0.2%, confounding forecasts for a 0.1% decline, after falling 0.1% in September.
Year-over-year, the U.S. producer price index rose at 1.5% in October, outpacing expectations for a 1.2% increase and following a gain of 1.6% in the preceding month.
The core producer price index, which is stripped of volatile food and energy components, eased up by a seasonally adjusted 0.4% last month, beating expectations for a gain of 0.2% and following a flat reading in September.
Core producer prices rose 1.8% year-on-year in October, surpassing forecasts for 1.5% and up from 1.6% in the preceding month.
The Federal Reserve pays close attention to core prices when determining monetary policy.
Separately, the yen was down against the euro and down against the pound, with EUR/JPY up 0.77% at 146.33, and GBP/JPY trading up 0.12% at 182.65.
On Wednesday, expect the pair to move on the Bank of Japan's announcement on its benchmark interest rate and statement, which outlines economic conditions and the factors affecting the monetary policy decision. The bank will hold a press conference following the announcement.
The U.S. is to release data on building permits and housing starts.
Also Wednesday, the Federal Reserve is to publish the minutes of its October meeting.