The yen declined 1% to 153.84 per dollar and by a similar margin against the euro to 165.87, on both counts its lowest since late July
The yen dipped to a three-month low on Monday as investors figured the loss of a parliamentary majority for Japan’s ruling coalition in weekend elections would slow future rate hikes, while the dollar headed for a monthly gain on rising U.S. yields.
In the Asia session, the yen declined 1% to 153.84 per dollar and by a similar margin against the euro to 165.87, on both counts its lowest since late July.
A period of wrangling to secure a coalition is now likely after the LDP and its junior partner Komeito won 215 lower house seats to fall short of the 233 majority.
Traders said the election would likely result in a government without the political capital to preside over increasing rates and could usher in another era of revolving-door leadership.
Japan has already had four different prime ministers in a little more than four years and instability was expected to breed caution at the central bank, which meets to set rates this week.
It is one more thing for them to consider when they should be looking at the economy, said State Street’s Tokyo branch manager Bart Wakabayashi. Are we going to have another series of prime ministers every 10-12 months? That would not be good for the yen.
Analysts at BNY said the next immediate target for dollar/yen would be 155 with 160 a likely line in the sand that would draw intervention from the finance ministry.
Elsewhere, the dollar was pushing higher and on course for its biggest monthly gain in 2-1/2 years as signs of strength in the U.S. economy and bets on Donald Trump winning the presidency lifted U.S. yields.
At $1.0791, the euro was stable on Monday but down more than 3% on the month. Sterling bought $1.2952 and a 3.1% decline through October so far.
