The yen dipped 1.6% to 149.81 yen on the dollar, its biggest one-day decline since May 12, wiping out gains it made in the past week

The yen tumbled against the U.S. dollar by the most in five months in early trading on Monday after Sanae Takaichi won the LDP leadership election.

The yen dipped 1.6% to 149.81 yen on the dollar, its biggest one-day decline since May 12, wiping out gains it made in the past week as markets resumed trading in Asia.

Against the euro, the Japanese currency dropped 1.4% to 175.63 yen, nearing its weakest since the creation of the European single currency.

The coming days will be important to gauge her policies and from other potential members in her likely cabinet, Paul Mackel, global head of FX research at HSBC, wrote in a research note. While we see room for the JPY to recover, there are limits given the domestic policy uncertainty.

Takaichi’s win will likely lead to some weakness in the yen, said Mahjabeen Zaman, head of FX Research at ANZ in Sydney. There’s a lot of political and fiscal uncertainty in the near term and maybe the BOJ may be cautious, despite the data supporting a little bit more of a hawkish stance, she said on a podcast.

Long-dated Japanese government bonds sold off, with the 40-year JGB yield jumping 12 basis points to 3.529%. The yen swaps market on Monday now indicates a 41% likelihood of a rate hike by December, down from 68% on Friday.

We’re in the eye of the storm, said Chris Weston, head of research at Pepperstone Group in Melbourne, as traders seek clues on how aggressively Takaichi will seek to ease fiscal policy.

If markets get a whiff that she’s going to do Abenomics-lite, it could keep bond buyers out of the market, he said. She does need to tread a careful path if she goes down that road.

With many markets in Asia shut for holidays, the dollar index was last down 0.1% at 98.029, extending recent losses.