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Dollar hits 7-year high vs yen on sales tax delay

Yuirko Nakao | Bloomberg | Getty Images

The dollar climbed to a seven-year high against the on Tuesday after Japan's stock index surged as investors cheered the possibility that Japanese Prime Minister Shinzo Abe may delay a planned sales tax increase.

The safe-haven yen typically struggles when Japanese stocks rise because investors will sell the Japanese currency and seek riskier assets when things are doing well.

Pressure appeared to be building for Abe to call a snap election and postpone the tax hike. The last hike in April, which was part of a plan to rein in public debt, sent Japan's economy into a slump.

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While a postponement of the sales tax would boost sentiment toward Japanese stocks in the near term, in the medium to longer term it is unlikely to be welcomed by investors as it would delay much needed fiscal reforms.

The dollar hit 116.09 yen, its highest since October 2007. It was last trading above 115 up roughly 0.7 percent on the day.

The greenback has gained nearly 10 percent against the yen so far this year,

The yen had already been weakened by the Japanese central bank's announcement on Oct. 31 that it would expand its huge stimulus program, with the greenback surging over 6 percent since then against the Japanese currency.

Elsewhere, the Swiss franc hit a 26-month high against the euro, fueling talk the Swiss National Bank might buy euros to honor its 2011 promise to keep the euro above 1.20 francs.

The market is now looking ahead to this week's batch of U.S. data, including retail sales and consumer sentiment, that may further underscore the brighter U.S. economic outlook relative to Europe and Japan.

The dollar did weaken a little after U.S. non-farm payrolls data on Friday failed to live up to more optimistic expectations, hitting 113.86 yen on Monday.

The euro rose to almost $1.25.

—By Reuters

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