LONDON (Reuters) - The dollar held close to a one-week high against the yen on Friday ahead of Japan's upper house election this weekend, which could add momentum to Prime Minister Shinzo Abe's aggressive economic reform drive.
Opinion polls show Abe's ruling bloc is on track to take a hefty majority. That result would give him more freedom to push his agenda of monetary easing, public spending and structural reform, which could weigh on the yen.
The dollar was down 0.1 percent at 101.27 yen, close to the one-week high of 100.87 yen hit earlier in the session. A large option expiry was reported at 101.50 yen and could keep the currency pinned to that level. The dollar is up more than 15 percent against the yen on the year.
"Everybody expects Abe to gain a majority in the upper house and strengthen his position and policy ... that would leave the door open for more easing if needed and see dollar/yen rise," said Niels Christensen, FX strategist at Nordea.
Earlier in the session, the yen rose after Japan's benchmark Nikkei <.N225> slipped. A fall in equities can increase risk aversion and spark demand for the yen - a traditional safe-haven currency.
Such gains have, however, been fleeting as the yen stayed vulnerable to the Bank of Japan's massive monetary expansion, while the dollar has been supported by expectations that the U.S. Federal Reserve could start scaling back its stimulus.
The dollar had been boosted by higher U.S. bond yields but doubts over when the Fed will start withdrawing stimulus have kept it clear of three-year highs struck on July 9.
The dollar index was down 0.1 percent at 82.672 <.DXY>, above a three-week low of 82.342 set on Wednesday.
Traders said, with expectations so high, anything less than a sweeping victory by Abe's ruling bloc could lift the yen.
The euro was flat at 131.60 yen, not far from a seven-week high around 132.10 yen hit earlier on Friday on trading platform EBS. Against the dollar, the euro edged up 0.2 percent to $1.3136.
(Additional reporting by Masayuki Kitano in Singapore; Editing by John Stonestreet) Currency bid prices at 0908 GMT. All data taken from Reuters with percent change calculated from the daily U.S. close at 2130 GMT.
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