(Updates to U.S. morning)

*

Dollar/yen hits 153.88

*

Dollar index eyes largest monthly rise since 2022

*

Analysts predict further yen weakness, potential BoJ

caution

By Laura Matthews, Tom Westbrook, Stefano Rebaudo

NEW YORK/SINGAPORE, Oct 28 (Reuters) - The yen hit

three-month lows against the dollar on Monday, as Japan's ruling

coalition's election loss raises political and monetary policy

uncertainty, 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, which

recovered much of that loss, was last down about 0.3% on the

dollar at 152.72, bringing the decline in October to 6.4%, the

largest of any G10 currency.

"That (recovery) indicates to me that maybe the European and

U.S. markets, relative to Japanese traders, are not seeing the

political uncertainty in the same light," said Jane Foley, head

of FX strategy at Rabobank London.

"What is also going to be very important for markets is

whether or not there is a coalition in place relatively quickly

so that there can be budget talks going into December."

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.

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.

George Vessey, lead FX Strategist at Convera, in London

said the coalition losing its majority for the first time since

2009 has added to the bearish Japanese yen profile as political

uncertainty clouds the BoJ's outlook.

"The yen was already under pressure by rising global

yields, while easing risk aversion had been encouraging

yen-funded carry trades," said Vessey.

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 0.18% at 104.19.

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 0.22% to $1.0817, but was

still down nearly 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.

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.

The week ahead also includes inflation readings for Europe and

Australia, gross domestic product data in the U.S. and

purchasing managers' indexes for China.

"The diverging macro picture has led some investors to

rethink their positioning as it relates to the future policy

path of the respective central banks," said Vessey.