The yen slipped as Japanese election results clouded prospects for a BOJ rate hike

Robert Novoski

By Tom Westbrook

SINGAPORE (Reuters) – The yen hit a three-month low on Monday as Japan’s ruling coalition lost its parliamentary majority and investors predicted it would likely slow future interest rate hikes, while the dollar headed for a monthly gain on rising U.S. yields.

Against the dollar, the yen hit its weakest point since late July at 153.3 in morning trade and touched the same figure at 165.36 against the euro.

Prime Minister Shigeru Ishiba’s Liberal Democratic Party, which has ruled Japan for most of its post-war history, and its coalition partner Komeito won 209 of the 465 lower house seats, public broadcaster NHK reported, and all but 20 seats.

The number is down from the 279 seats they won previously and marks the coalition’s worst result since losing power in 2009.

A contentious deal-making period is likely and with cost-of-living pressures a major issue, traders think the resulting government will pressure the Bank of Japan to normalize policy very slowly.

“The market sees higher risks to economic policy becoming more dovish,” analysts at Nomura said in a note.

DOLLAR PROFITS

Elsewhere, currency markets were broadly stable, leaving the dollar on track for its biggest monthly gain in 2-1/2 years as signs of strength in the US economy and speculation Donald Trump would win the presidency lifted US yields.

At $1.0795, the euro was steady on Monday but was down more than 3% on the month. Sterling bought $1.2961 with a 3.1% drop in October so far.

The index has risen 3.6% during October, its sharpest monthly gain since April 2022.

Ten-year Treasury yields rose 40 basis points for October versus a rise of 16 bps for the 10-year and 23 bps for gilts.

The Australian dollar bought $0.6610 on Monday, with disappointment at the lack of details or urgent government spending in China’s stimulus plan helping drag it lower by around 4.5% through October. The New Zealand dollar traded near a three-month low of $0.5974, down nearly 6% on the month.

The week ahead is data-packed, with inflation readings for Europe and Australia, gross domestic product data in the US and purchasing managers’ indexes for China.

© Reuters. FILE PHOTO: 10,000 Japanese yen notes are scattered next to 100 US dollar notes at the Interbank Inc. money exchange. in Tokyo, in this September 9, 2010 picture illustration. REUTERS/Yuriko Nakao/File Photo

An interest rate decision will also be announced in Japan on Thursday, although no policy changes are expected.

Weekend data showed China’s industrial profits plunged in September, with a year-on-year decline of 27.1%. The yuan came under pressure in early foreign trade and was headed for a monthly decline of around 1.9%.

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