TOKYO (Reuters) - The US dollar surged to a fresh seven-year high against the yen on Monday after Japan's third quarter GDP unexpectedly contracted, giving the Japanese prime minister a strong excuse to call a snap election and delay a planned sales tax hike.

The dollar rose to a peak of 117.06 yen, its highest since October 2007.

The yen has lost ground against the dollar this month partly on speculation that a victory by Prime Minister Shinzo Abe at the polls could lead to a second round of reflationary policies.

Japan's economy unexpectedly shrank an annualised 1.6 per cent in July-September after a severe contraction in the previous quarter.