Yen Falls To 84.48 After LDP Wins Landslide Cictory Before Retreating

The Japanese yen fell sharply after Shinzo Abe's Liberal Democratic Party (LDP) won a landslide victory in Sunday's general elections, fuelling expectation that the Bank of Japan will announce ultra-loose monetary policy at the end of Thursday's monetary policy meeting. The greenback gapped higher at Monday open and jumped above 2012 peak at 84.18 to a fresh 19-month high at 84.48 in New Zealand, however, profit-taking offers emerged and price quickly retreated in Asia and weakened to intra-day low at 83.61 in European session before trading sideways.

Shinzo Abe said at Asian midday "will reinstate government council on economic and fiscal policy, which will spearhead economic policy and be forum of talks with BoJ governor; size of extra budget must be big given Japan's output gap, which is behind deflation; want BoJ to take into account fact that public supported my views on monetary policy at the time of its policy meeting on December 19-20."

Although the single currency extended recent upmove to a fresh 7-1/2 month high at 1.3191 in New Zealand due partly to the rally in EUR/JPY (the cross pair jumped to an 8-month high at 111.17), price retreated to 1.3145 in European morning on profit-taking and then traded narrowly inside this range in New York session.

In New York morning, euro was pressured as the European Central Bank President Draghi said the "medium-term outlook for economic activity remains challenging.'"He also said "single supervisory mechanism (SSM) to help restore confidence in the eurozone banking sector; SSM will help to revive interbank lending, cross border credit flows, will have tangible effects for real economy; not up to ECB to push governments into applying for use of OMT bond-buy plan."

Although the British pound rose initially in tandem with euro to 1.6202 in New Zealand, profit-taking offers pressured the pair to 1.6156 in Asian morning but active cross buying of sterling versus euro pushed cable to a fresh 9-week high at 1.6217 in European session before retreating in New York.

In other news, the European Central Bank board member Mersch said he "does not understand the discussion about a rate cut as unconventional monetary policy working best at moment; does not see any higher deflation risk than a year ago."

Data to be released on Tuesday:

RBA Decemeber 4 meeting minutes; U.K. PPI input, PPI output, PPI core, CPI, CPI core, RPI, U.S. Current account (USD), Redbook retail sales, NAHB housing market index.