The Japanese yen lingered near a three-month low on Tuesday, as the ruling coalition’s loss of a parliamentary majority in weekend elections raised concerns about the country’s political and monetary direction.
Meanwhile, the US dollar experienced a slight dip but remained close to its recent highs, with key economic data releases expected later in the week that could influence Federal Reserve policy.
The yen traded 0.1% higher at 153.12 per dollar, recovering slightly after plummeting to 153.885 on Monday—the lowest level since July. This drop followed Japan’s national elections on Sunday, which left the future government in a state of uncertainty.
Japan’s Liberal Democratic Party, along with its junior partner Komeito, secured 215 seats in the lower house, falling short of the 233 needed for a majority. This outcome suggests a potential period of negotiation to form a coalition government.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted, “Overall, the risks seem tilted toward looser fiscal policy under the new government.” She added that robust US economic data and the possibility of a Trump victory could further elevate the dollar/yen exchange rate in the coming weeks.
In addition, increased volatility in financial markets might prompt the Bank of Japan (BOJ) to maintain its current policy interest rate for a longer duration than previously anticipated.
The yen also struggled against the euro and the British pound, trading at 165.73 and 198.72, respectively, both near three-month lows. The BOJ is set to announce its monetary policy decision on Thursday, with expectations leaning towards keeping interest rates unchanged.
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