Written by Tom Westbrook
SINGAPORE (Reuters) – The yen fell to a three-month low on Monday as investors thought the loss of Japan's ruling party's parliamentary majority in a weekend election would delay future rate hikes, while the dollar looked to post monthly gains on rising U.S. yields. .
In the Asian session, the yen fell 1% to 153.84 per dollar and by the same margin against the euro to 165.87, in both the weakest spot since late July.
Time to scramble for a coalition is now possible after the Liberal Democratic Party and its junior partner Komeito won 215 seats in the lower house to fall short of a majority of 233.
Traders say the election could result in a government that lacks the political capital to oversee rising prices and could usher in another period of volatile leadership.
Japan has already had four different prime ministers in just over four years and the instability was expected to increase vigilance at the central bank, which meets to set rates this week.
“Something else they have to look at if they have to look at the economy,” he said State Street (NYSE:) Tokyo branch manager Bart Wakabayashi. “Are we going to have another series of ministers every 10-12 months? That won't be good for the yen.”
Analysts at BNY say that the next targets for dollar/yen will be 155 and 160 which may be the line in the sand that will attract intervention from the finance ministry.
ADVANTAGES OF THE OLD
Elsewhere, the dollar has been climbing higher and higher every month in 2-1/2 years as signs of strength in the US economy and bets on Donald Trump winning the presidency lifted US yields.
At $1.0791, the euro was steady on Monday but down more than 3% on the month. Sterling traded at $1.2952 and down 3.1% in October so far.
The ten-year Treasury yield rose 40 basis points in October compared to a 16 bps rise in 10-year bunds and 23 bps in gilts.
Another drag on disappointment in China's stimulus plans had the Australian and New Zealand dollars under pressure and falling to a 2-1/2-month low on Monday.
Trading took off at $0.5971 and is close to a 6% loss in October so far, while it inches lower at $0.6597 and is down 4.5% in October.
It rose 3.6% to 104.49 in October, its sharpest monthly increase since April 2022.
Next week is full of data, with inflation readings in Europe and Australia, gross domestic product data in the US and purchasing managers' indicators for China.
Data over the weekend showed that China's industrial profits fell in September, down 27.1% year-on-year. The yuan hit its highest since late August at 7.1355 per dollar.
