TOKYO (MarketWatch) -- A historic election victory for Japan's main opposition party at the weekend as well as a sharp decline in Chinese stock prices sent the yen to a seven-week-high against the dollar and euro in Asia Monday. The dollar fell to as low as Y92.54 - its lowest level since July 13 - from Y93.61 in New York Friday. The euro fell to Y132.17, its lowest since July 17. The Democratic Party of Japan won 308 of the Lower House's 480 seats in Sunday's general election, ending half a century of almost uninterrupted rule by the Liberal Democratic Party, which retained just 119 of the 300 seats it held before the election. The outcome raised non-Japanese investors' expectations for a positive and drastic change in the country's style of government, prompting them to buy the yen, dealers said. The DPJ's consumer-friendly stance also raised investors' hope that sluggish consumption would be boosted under the new administration. "Though the DPJ's victory was well expected, a change in Japanese politics is still breathtaking and that led players in Oceania to buy the yen," said Hiroshi Maeba, a senior dealer at Nomura Securities. Also boosting the yen was risk aversion movement, dealers said, as China's Shanghai Composite Index declined 5.4% to 2706.96 and Japan's Nikkei 225 Stock Average lost 0.3% to 10,507.16 as of 0450 GMT. The yen is regarded as a safe-haven currency. Investors vigorously reduced their exposure to risk-sensitive assets because they speculate top officials from the Group of 20 nations may discuss tighter regulations for the banking sector. "If the changes were to include lowering lending limits, Chinese stocks would decline sharply. When such a move is possible, who can buy the (risk-sensitive) dollar and euro?" said Yuji Saito, head of foreign exchange at Societe Generale. Finance ministers and central bankers from the G20 nations will meet in London this weekend. The meeting of the top G20 leaders will be held in Pittsburgh between Sept. 24-25. Japan's Vice Finance Minister Yasutake Tango said last week that financial regulations will be one of the major topics. French President Nicolas Sarkozy reportedly intends to push for a tighter rulings at the summit. For now, currency dealers may try to push the dollar to a six-month-low of Y91.73, Nomura's Maeba said. The euro may slip below Y130, dealers say. At 0450 GMT, the dollar stood at Y92.75, while the euro was at Y132.50. The dollar index, which measures the currency's value against six major units, was at 78.28 from 78.30. Against the dollar, the euro was traded at $1.4285, lower than $1.4300 late Friday in New York. Market sentiment is negative for the euro, dealers said, because the European unit is more risk sensitive than the greenback due to the region's high interest rates. The European Central Bank's key policy rate is at 1.00%, while the Federal Reserve's is a range between 0.00% and 0.25%.

Source