Yen falls after Japanese election

The yen fell Monday in the Asian markets Monday, the day after Japan’s ruling party suffered a setback in parliamentary elections that could affect plans to cut the country’s debt. The dollar rose in afternoon trading in Tokyo, and the euro, which fell against the dollar, rose against the yen.

Reuters

The dollar rose to 89.03 yen, a two-week high. The euro rose to 112.19 yen, even as it fell to 1.2597 dollars.

Markets are reacting to Japan’s ruling Democratic Party of Japan which lost its majority in the upper house of parliament in elections on Sunday, making it more difficult for the government to push through reforms of the economy.

The government is not immediately threatened, though it will now have to find new coalition partners. A period of political uncertainty would make it difficult for the government to react quickly to any new economic crisis, which makes investors wary.

But on Monday, the head of the International Monetary Fund, Dominique Strauss-Kahn, said that while Asian countries should prepare for threats to their economic recovery, due to spillover from the eurozone debt crisis, the possibility of a double-dip recession is unlikely.

"I don't believe there will be another dip. Our baseline is that there will be a recovery," he said in a speech to a conference in the central South Korean city of Daejeon. But policymakers “need to remain attuned to negative shocks", he said.

Last week the IMF forecast growth in Asia in 2010 at 7.5 per cent, compared to 4.6 per cent worldwide average.