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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

(Updates prices at 1145 GMT)

By Tom Westbrook and Stefano Rebaudo

SINGAPORE, Oct 28 (Reuters) - The yen hit three-month

lows 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.

The dollar rose by as much as 1% to a high of 153.88, the

yen's weakest level since late July. The yen was last

down about 0.2% on the dollar at 152.65, bringing the decline in

October to 6.4%, 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 headed for its largest monthly rise in

two and a half years against a basket of major currencies,

driven by signs of strength in the U.S. economy. Bets on Donald

Trump winning the presidency have also 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 0.15% at 104.22.

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.

The euro meanwhile rose 0.17% to $1.0816, but was

still down over 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.

Traders are also upping their bets that the European Central

Bank could cut rates more aggressively, which is also weighing

on the euro.

"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 U.S. October employment

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

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

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.