The Japanese yen fell to a three-month low against the U.S. dollar on Monday, reflecting market concerns over political shifts and economic policies. Japan’s ruling Liberal Democratic Party (LDP) and its coalition partner Komeito lost their majority in the latest parliamentary elections, raising concerns about policy continuity, particularly regarding interest rate decisions. Investors worry that political uncertainty could delay the Bank of Japan’s expected rate hikes, with fears of leadership instability influencing the outlook for fiscal and monetary policies. The yen dropped to 153.88 per dollar, marking a 6.4% decline in October, the steepest among G10 currencies this month.
The dollar, by contrast, surged, poised for its biggest monthly gain since April 2022. Strong U.S. economic data and expectations of a Republican sweep in the upcoming presidential and congressional elections have driven up U.S. Treasury yields and bolstered the dollar. Investors speculate that a Republican victory could reinforce policies favoring a strong dollar while delaying anticipated interest rate cuts, further boosting the currency. The U.S. dollar index rose 3.6% in October, reflecting optimism around the U.S. economy and political outcomes.
Meanwhile, the euro also weakened, down over 3% for October, with the European Central Bank indicating a more dovish approach amid sluggish economic data in the eurozone. The euro faces further risk if the U.S. imposes additional tariffs under a potential Republican-led administration, which could trigger retaliatory measures from Europe. A dovish stance by the ECB, coupled with political uncertainty in Japan and the potential for U.S. policy changes, adds to the complexity of the current global economic environment.
In Asia, the Australian and New Zealand dollars hit multi-month lows, influenced by slowdowns in Chinese industrial profits, which fell 27.1% year-on-year in September. The yuan also weakened, reaching its lowest since August. The upcoming U.S. payrolls report and global inflation data are expected to further shape currency trends as markets adapt to geopolitical and economic developments.
