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Dollar/yen hits 153.88

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Dollar index eyes largest monthly rise since 2022

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AUD, NZD touch 2-1/2 month lows

(Recasts lead, adds comments, background)

By Tom Westbrook and Stefano Rebaudo

SINGAPORE, Oct 28 (Reuters) - The yen sank to a 3-month

low on Monday as investors figured the loss of a parliamentary

majority for Japan's ruling coalition in weekend elections would

slow interest rate rises, while the U.S. dollar headed for its

biggest monthly gain since April 2022.

In the Asia session, the yen weakened as far as 153.88

per dollar and 166.06 per euro, on both

counts the softest since late July. The yen was last down about

0.7% on the dollar at 153.35, with a 6.4% drop through October,

the largest of any G10 currency.

A period of wrangling to secure a coalition is likely after

Japan's Liberal Democratic Party and its junior partner Komeito

won 215 lower house seats to fall short of the 233 majority.

Traders said the vote would likely result in a government

without the political capital to preside over rising rates and

could usher in another era of revolving-door leadership.

Shigeru Ishiba was Japan's fourth prime minister in a little

over four years and further instability was widely expected to

breed caution at the central bank, which meets to set rates this

week.

"It's one more thing for them to consider when they should

be looking at the economy," said State Street's Tokyo branch

manager Bart Wakabayashi. "Are we going to have another series

of prime ministers every 10-12 months? That would not be good

for the yen."

Analysts at BNY said the next immediate target for

dollar/yen would be 155 with 160 a likely line in the sand that

would draw intervention from the finance ministry.

DOLLAR GAINS

Elsewhere, the dollar was pushing higher and on course for

its largest monthly rise in two and a half years on signs of

strength in the U.S. economy. Bets on Donald Trump winning the

presidency and strong economic data lifted U.S. yields in

anticipation of policies that could delay interest rate cuts.

The U.S. dollar index has climbed 3.6% to 104.46

during October, its sharpest monthly rise since April 2022. It

was last down 0.1% at 104.28.

Most analysts argued that markets are increasingly pricing

in a Republican sweep, with Trump winning the presidency and his

party controlling both chambers of Congress.

At $1.0816, the euro rose 0.2% on Monday but was

down more than 3% on the month.

Analysts said the single currency could drop further if the

U.S. enacts a global baseline tariff, in addition to higher

duties on China, and other countries retaliate. Much of the move

would come from higher U.S. policy rates in response to the

inflationary impact of tariffs.

Meanwhile the dovish repricing of the European Central

Bank monetary path is weighing on the single currency.

"The euro short-term rate (ESTR) curve continues to

price in a 35 bps rate cut at the ECB meeting in December," said

Chris Turner, head of forex strategy at ING.

"And this could easily swing towards 50 bps should soft

euro zone data or a U.S. Republican victory (and protectionism)

materialise," he added.

Investors are now focusing on the October government

payrolls report this week, which is likely to be affected by a

strike at Boeing and two hurricanes that hit the U.S. Southeast.

Ten-year Treasury yields are up 40 basis points

for October against a rise of 16 bps for 10-year bunds

and 23 bps for gilts.

A further drag from disappointment in China's stimulus plans

had the Australian and New Zealand dollars under pressure and

slipping to 2-1/2 month lows on Monday.

Selling carried the kiwi to $0.5958 and a 6% loss

for October so far, while the Aussie inched lower to

$0.6579 and is down 4.6% in October.

The week ahead is crowded with data, with inflation readings

for Europe and Australia, gross domestic product data in the

U.S. and purchasing managers' indexes for China.

Weekend data showed industrial profit in China plunged in

September, with a year-on-year drop of 27.1%.

The yuan hit its weakest since late August at

7.1355 per dollar.