Yen Dips Amid Political Shifts; Dollar Soars on Economic Strength

The yen has fallen to a three-month low due to political instability in Japan, while the U.S. dollar is on track for its largest monthly rise since April 2022, bolstered by strong economic data and expectations of a Republican sweep in upcoming U.S. elections.

The yen has plummeted to a three-month low, influenced by the ruling coalition in Japan losing its parliamentary majority in recent elections. This political shift has raised concerns about the pace of interest rate hikes. During the Asia session, the yen slumped against both the dollar and the euro, marking its weakest point since late July.

Experts suggest that a period of political instability could emerge in Japan, potentially leading to hesitation in interest rate policies. The Liberal Democratic Party and junior partner Komeito's failure to secure a majority might signal another era of frequent leadership changes. Such instability is causing caution at the central bank, which is set to meet on rate decisions this week.

Meanwhile, the U.S. dollar is gaining traction, buoyed by strong economic indicators and bets of a Republican victory in the upcoming elections. Analysts are predicting further shifts in the global currency markets, depending on upcoming economic data and geopolitical events, including potential tariffs and policy changes from a new U.S. administration.

(With inputs from agencies.)