Dollar/yen hits three-month high, Abe election win adds to bullish mood

The dollar edged up to a three-month high against the yen on Monday, with an emphatic election victory for Japan's ruling party keeping yen-weakening reflationary measures at the heart of government policy.

The election outcome added extra lift to a dollar already on a bullish footing thanks to progress on U.S. tax reform.

Prime Minister Shinzo Abe's ruling party scored a big win in Sunday's election with his coalition keeping its two-thirds "super majority" in the lower house, local media said.

Abe's victory eased fears that the economic steps implemented under his leadership - such as the Bank of Japan's super easy monetary policy - would be disrupted and halt the yen's depreciation against the dollar.

"An LDP win did not come as a surprise, but it still helped clear uncertainty that had been preventing participants from buying the dollar," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

"Overcoming deflation with the BOJ easing is at the crux of the Abe administration's policies and this will now be allowed to continue indefinitely. It's relief over the BOJ policies, rather than hopes for fresh fiscal stimulus, that is weakening the yen."

The U.S. currency was up 0.45 percent at 114.05 after touching 114.10, its highest since July 11.

The greenback had already gained about 0.9 percent on Friday after the U.S. Senate approved a budget blueprint for the 2018 fiscal year, clearing a critical hurdle for Republicans to pursue a tax-cut package without Democratic support.

The dollar was supported as U.S. yields rose, with the two-year yield hitting a nine-year high, as the progress in tax reforms boosted expectations of increased U.S. Government borrowing and a possible pickup in inflation. [US/]

The euro was 0.25 percent lower at $1.1757 (EUR=), extending losses from Friday when it lost 0.6 percent.

The dollar index against a basket of six major currencies rose to 93.872, its highest since Oct. 6.

The New Zealand dollar, battered last week by a change in government, slipped to a five-month low of $0.6939 (NZD=D4) against the broadly stronger U.S. currency. The kiwi shed about 3 percent last week.

The Australian dollar edged down 0.1 percent to $0.7807 (AUD=D4).