By Steven C. Johnson
NEW YORK (Reuters) - The dollar slid to a 15-year low beneath 83 yen on Tuesday after Japan's prime minister won a leadership vote and the euro hit a one-month peak against the greenback after piercing a key technical level.
The yen rose after Japanese Prime Minister Naoto Kan won an unexpectedly decisive victory over party heavyweight Ichiro Ozawa, who had been more strident in his calls to intervene to weaken the yen.
Data showing August marked the best month for U.S. retail sales in the last five also helped boost risk appetite, pushing the high-yield Australian dollar to a 10-month high.
The yen has gained more than 10 percent against the dollar this year as recent weak U.S. data and record low bond yields drove money away from U.S. assets. Japan worries that a strong yen will hurt its export-driven economy. The currency was last at 82.94, its lowest level since mid-1995.
The Kan victory provided "positive yen news," said Joseph Trevisani, chief analyst at FX Solutions in Saddle River, New Jersey. But he added that "83 has no more meaning than the typical round number in dollar/yen. The level to look at is the all-time low," which comes in around 79.75 yen.
The euro pared earlier losses after the U.S. retail data, though it took a break above the $1.2930 area, a level that had held since August, for it to accelerate to a one-month high of $1.2980. It was 0.8 percent firmer from late Monday.
Analysts said the next strong resistance level comes in around $1.3050, with $1.2760 now likely to serve as support.
Traders said the dollar index's drop below the 200-day moving average also helped push the euro and other currencies up against the greenback. The index measures the dollar against six major currencies <.DXY>.
The euro was down 0.2 percent at 107.55 yen, well off a session low, while the Australian dollar hit a 10-month high of $0.9387. Sterling rose 0.5 percent to $1.5505.
Lingering doubts about the longer-term global outlook, however, kept the safe-haven Swiss franc in demand. The dollar fell to 0.9947 francs, the lowest since late November.
YEN BARRIERS
The main focus was still on the yen, where options barriers near 83 per dollar have slowed its rise for now. Traders also cited "stop=loss" orders around 82.85 yen.
If Japan ultimately intervenes to weaken the yen, it would likely do so without U.S. or European help, analysts said.
"The threat of intervention will hang over the market but will there be international cooperation? Probably no. So the market will continue to test Kan's resolve," said Simon Derrick, head of currency research at BNY Mellon.
But if the dollar hits 82 yen in a couple of hours, the risk of intervention would rise, analysts say.
"With the political drama out of the way, economics will drive intervention and if there is a rapid appreciation you could see them coming to stop it," said a currency strategist at a Japanese bank.
Boris Schlossberg, head of research at GFT Forex, said traders would try to push the dollar toward the all-time low beneath 80 yen, though he said if U.S. economic data starts to improve, short dollar positions could be in for a squeeze.
Weak U.S. data and falling U.S. yields have accelerated the dollar's slide against the yen. "Ultimately, (dollar/yen) is a bond trade," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange,
(Additional reporting by Nick Olivari, Gertrude Chavez-Dreyfuss and Vivianne Rodrigues in New York and Tamawa Desai in London; Editing by Chizu Nomiyama and Andrew Hay)
