The dollar soared to seven-month highs against the yen on Thursday as the front-runner to become Japan's next prime minister said he would pressure the Bank of Japan embark on "unlimited easing" to stoke the economy.
The comments from opposition leader Shinzo Abe sent the greenback to 80.86 yen in afternoon currency trade, well up from 80.23 yen in New York late Wednesday, and its highest levels since the end of April.
The euro also soared against the Japanese unit, changing hands at 103.21 yen from 102.19 yen, while buying $1.2736, against $1.2734 in New York.
Abe, leader of the main conservative opposition Liberal Democratic Party and a former prime minister, stoked expectations for aggressive easing by vowing to strike an agreement with the central bank, dealers said.
He said he would seek to ease monetary policy enough to push inflation up to 2-3 percent in a bid to drag Japan out of the deflationary spiral that has haunted its economy for years.
"Only by implementing unlimited easing to achieve this target will the market show reaction," Abe said during a speech in Tokyo a day after a senior ruling party official confirmed the national polls were set for December 16.
"If we come into power, we will implement bold monetary easing through an accord forged with the Bank of Japan," he added.
Opinion polls point to dwindling support for Prime Minister Yoshihiko Noda owing to fears about the future of the world's third-largest economy.
The dollar rose in New York on Wednesday with an Abe victory seen as a yen-selling factor given his support for looser monetary policy, which tends to weigh on the currency.
Analysts said the trend of a weaker yen was likely to continue but may fade due to economic problems elsewhere in the world.
The yen has been seen as safe bet by dealers at a time of economic uncertainty, with fiscal turmoil in Europe and the unsteady US economic recovery.
There are also rising fears that the United States could fall off a fiscal cliff of tax hikes and spending cuts if a deal between bitterly divided Republicans and Democrats is not reached before January 1.
Risk aversion also set in on Middle East tensions after an Israeli air strike in Gaza Wednesday that killed the military chief of the militant Hamas group, reigniting tensions in the region.
The dollar was mixed against other Asia-Pacific currencies.
It fell to 9,625 Indonesian rupiah from 9,637 rupiah and to 54.92 Indian rupees from 54.97 rupees but rose to 1,087.90 South Korean won from 1,086.35.
The greenback also edged up to 30.71 Thai baht from 30.68 baht, to Tw$29.07 from Tw$29.04, to Sg$1.2230 from Sg$1.2219 and to 41.21 Philippine pesos from 41.10 pesos.
The Australian dollar fell to $1.0376 from $1.0450, and China's yuan gained to 12.97 yen from 12.74 yen.