Tokyo - The yen plunged in Asian currency markets on Monday after Japan's conservative opposition swept to victory in national polls, with promises from its leader to press for more central bank easing.
In early Tokyo trade the dollar bought ¥84.30, up from ¥83.52 in New York on Friday, the greenback's strongest level against the Japanese currency in more than a year and a half.
The euro also soared to multi-month highs at ¥111.10 from ¥109.94 in US trade.
But by late morning, the yen pared some losses, sitting at ¥84.04 against the dollar and ¥110.57 against the euro.
The European single currency also bought $1.3159, compared with $1.3161 in New York.
On Sunday, voters dumped Prime Minister Yoshihiko Noda three years after his Democratic Party of Japan (DPJ) promised a change from more than half a century of almost unbroken rule by the Liberal Democratic Party (LDP).
Hawkish LDP head Shinzo Abe pledged to bolster Japan's defences in the face of a territorial spat with China while vowing to pressure the Bank of Japan (BoJ) into more aggressive policy easing measures to kickstart the world's third-largest economy.
He also offered to boost spending on infrastructure at a time when much of the tsunami-wrecked northeast remains a shell of its former self.
Abe's central bank pledge has weighed on the yen in recent weeks as traders bet that an LDP victory would boost the likelihood of more easing from the central bank, and see the appointment of a like-minded BoJ governor after current chief Masaaki Shirakawa's term terms ends next year.
But Abe's stated goals may hit political resistance despite Sunday's landslide victory, National Australia Bank said in a note.
"The upper house will... still have a say in the appointment of new BoJ officials," it said.
"This is of some significance, meaning that the LDP cannot automatically appoint its preferred choices for the posts of BoJ governor and deputy governors (both of them), all of whose terms expire next March and April."
However, speculation over BoJ policy moves were reinforced on Friday after the bank's own quarterly Tankan survey showed confidence among Japanese manufacturers hit a near three-year low in the final months of 2012.
Those were the weakest Tankan results since the start of 2010.
Separate figures showed Japan's economy shrank in the July-September period and may have dipped slightly in the previous three months, meaning the country had technically slipped into a recession.
Abe has said he wants the central bank to buy government bonds - effectively printing money - to generate inflation, to drag Japan out of the deflationary spiral that has haunted its economy for years.
While the BoJ in October expanded its asset-buying programme by ¥11 trillion to ¥91 trillion it decided last month to hold off any new measures despite warning the economy was "expected to remain relatively weak for the time being".
Turmoil in the key European market, an unsteady economic recovery in the US and a diplomatic row between Tokyo and Beijing over an East China Sea island chain, which sparked a consumer boycott of Japanese products, all weighed on the economy as it tries to recover from last year's quake-tsunami disaster.
Japanese exporters have also been suffering from a strong yen, which hit record levels around 75 against the dollar late last year and remains historically strong despite its recent weakening.
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