The Japanese yen remained near a three-month low against the dollar on Tuesday following Japan’s weekend election results, which saw the ruling coalition lose its parliamentary majority. This political shift has raised questions about Japan’s fiscal and monetary future, with analysts expecting the uncertainty to support a weaker yen in the near term.
Yen and Political Volatility
The yen (USDJPY) recently traded 0.28% higher at 152.86 per dollar, following Monday’s low of 153.885 — a level last seen in July. Japan’s Liberal Democratic Party (LDP) and junior partner Komeito won only 215 lower house seats, short of the 233 required for a majority. This outcome suggests a period of coalition building, which may involve looser fiscal policies, potentially increasing yen pressure. Japanese Finance Minister Katsunobu Kato warned that the government would closely monitor foreign exchange moves amid the volatility.
This political uncertainty, coupled with solid U.S. economic data and a potential Trump election win, has some analysts, such as Carol Kong of the Commonwealth Bank of Australia, forecasting continued yen weakening.
BOJ Policy Decision in Focus
The Bank of Japan (BOJ) is scheduled to announce its monetary policy decision on Thursday, with most expectations pointing towards holding interest rates steady. In light of the political shifts, BOJ officials will likely stay cautious, maintaining ultra-loose policies to stabilize financial markets. An opposition party leader also advised against drastic BOJ policy changes, indicating support for keeping the current approach.
