The Japanese yen skidded in Asian trade on Monday to three-month lows against the US dollar, after the election loss by the current Japanese parliamentary governing coalition, which could impede future interest rate hikes by the Bank of Japan.

The yen is also pressured by a surge in US 10-year treasury yields, amid speculation about a cautious stance by the Federal Reserve in executing policy easing in upcoming months.

The Price

The USD/JPY rose 1.1% today to 153.88 yen per dollar, the highest since July 31, with a session-low at 152.24.

The yen ended Friday down 0.3% against the dollar, resuming losses after a short hiatus on Thursday.

The yen also lost 1.9% last week against the dollar, the fourth weekly loss in a row as the odds of a Japanese interest rate hike later this year faded, while US yields surged.

Japanese Elections

Japans general elections ended with the governing LDP coalition getting 215 seats in the Diet, below the required majority, and down from 247 seats in the previous elections.

Its the first time that the LDP party has lost its majority since 2009, and it will need to seek out more partners in order to form a new government.

The upcoming tenuous government might lack stable political capital and financial strategy, which could hurt Japans economic recovery.

Analysis

Morgan Stanleys analysts said in a memo that coalition losses could impede the upcoming governments ability to execute a clear economic agenda.

Its viewed by many analysts as a heavy bruising, but the LDP coalition remains resilient and will likely form the next government.

US Yields

US 10-year treasury yields rallied 1% on track for the second profit in a row, hitting three-month highs at 4.286% and boosting the dollars standing.

According to the Fedwatch tool, the odds of a 0.25% Federal Reserve interest rate cut stood at 95%, while the odds of no change in rates stood at 5%.

A wider Japan-US long-term yield gap would hurt the appeal of Japanese bonds and the yens standing.