Yen Weakens Amid Political Uncertainty in Japan

The yen hit a three-month low as Japan's ruling coalition lost its parliamentary majority, possibly slowing interest rate rises. Political instability and leadership changes amid economic concerns heightened caution at the central bank. Meanwhile, the U.S. dollar strengthened, buoyed by rising Treasury yields and anticipated policy impacts.

The yen slumped to a three-month low on Monday, as a loss of parliamentary majority by Japan's ruling coalition spurred investor concerns over potential delays in interest rate hikes. With the yen weakening to 153.88 per dollar and 166.06 per euro, it marked the lowest levels since late July.

Experts predict that the election results could lead to a government lacking the political clout to manage increasing rates, possibly ushering in another era of frequent leadership changes. Such instability is expected to prompt increased caution from the central bank as it meets to set rates this week.

Elsewhere, the U.S. dollar is on track for its largest monthly gain in two and a half years, supported by rising Treasury yields and expectations of political outcomes. In contrast, the euro and sterling have fallen more than 3% so far in October, while the Australian and New Zealand dollars face pressure from lackluster Chinese stimulus plans.

(With inputs from agencies.)