Japanese and French politics help sterling to gain on euro and yen

(Reuters) -The pound benefited from weakness elsewhere on Monday, reaching its strongest in nearly four weeks on the euro, and an over one-year top on the tumbling Japanese yen, with both currencies hit by domestic political developments. 

Britain-specific news was fairly thin on the ground, but the euro dropped to 86.74 pence, its lowest since September 18, after France's new Prime Minister Sebastien Lecornu and his government resigned on Monday, just hours after Lecornu had announced his cabinet line-up. 

Euro/sterling is the most traded currency pair globally not involving the U.S. dollar, and was caught up in the selloff in French stocks and bonds. 

Traders are waiting to see what President Emmanuel Macron's next steps will be. 

"The President may be forced to announce a new dissolution (of Parliament) in the coming days, which could increase upward pressure on French interest rates and the underperformance of the CAC 40, with a significant risk of tensions spreading to other assets such as French banks, the euro and peripheral spreads," said Michaël Nizard, head of multi-asset and overlay, at Edmond de Rothschild Asset Management in emailed comments. 

Sterling yen is less heavily traded, but it too was in focus on Monday, with the pound reaching as high as 202.23 yen, its highest since July last year.. It was last up 1.6% at 201.81.

The yen weakened sharply after Sanae Takaichi, a proponent of an expansionist economic stance and loose monetary policy, won the presidency of Japan's ruling party and is now set to become the country's prime minister. 

That caused traders to push back bets on Bank of Japan rate hikes, weakening the currency.

Versus the dollar, the pound was down 0.15% at $1.345.  

British economic data is thin on the ground this week, but a raft of data next week will set the tone for Bank of England policy for the rest of this year. 

Traders are also increasingly focused on late November's UK budget.

(Reporting by Alun John; Editing by Sharon Singleton)