TOKYO (Reuters) -Japanese stocks rose strongly on Monday as the yen sank to a three-month low after Prime Minister Shigeru Ishiba's coalition lost its parliamentary majority in a drubbing in Sunday's election, raising uncertainty over the path for policy and the economy.

Ishiba's Liberal Democratic Party (LDP), which has ruled Japan for almost all of its post-war history, and junior coalition partner Komeito took 215 seats in the lower house of parliament - well short of the 233 needed for a majority - public broadcaster NHK reported. The LDP previously held 247 seats and Komeito held 32.

The outcome may force parties into fractious power-sharing deals to rule, potentially ushering in political instability.

The Nikkei share average rose 1.5% to 38,492.25 as of 0039 GMT, and was earlier up nearly 2%. It had opened 0.4% lower.

The yen sank as low as 153.34 per dollar for the first time since July 31, and last traded about 0.6% weaker at 153.22 per dollar.

"The result of the election itself is a negative for the stock market, without a doubt, because of the rise in political uncertainty," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"However, the rally is partly on the fact that this big risk event is now behind us, so there's a sense of relief. That and the weaker yen."

Benchmark 10-year Japanese government bond futures fell 0.07 yen to 143.99 yen, reversing an earlier rise.

The five-year JGB yield rose 0.5 basis point (bp) to 0.58%, the 20-year yield added 2 bps to 1.8%, the highest since Aug. 8, and the 30-year yield gained 3 bps to 1.38%.

The election result draws market attention to the policy stance of opposition parties that could become potential partners, many of which favour low interest rates. Markets could also price in more aggressive government spending. 

The upshot of the post-election uncertainty is "the Bank of Japan to hike later and more fiscal expansion," leading the yield curve to steepen, said Naka Matsuzawa, chief Japan macro strategist at Nomura.

"Reflationary, Abenomics-style policy will stay."

Coalition losses could reduce the chance the next government will implement "more challenging agenda items such as hiking the corporate tax rate", analysts at Morgan Stanley said in a note.

Analysts at BNY said the dollar could potentially rise to 155 yen again, as the BOJ downplays the immediate need for a rate increase and the Japanese election risks stoke additional political instability.

Japan's general election comes nine days before votes are counted in the closely contested U.S. presidential race, with investors weighing the possibility of a bullish dollar and higher yields in the event of another Donald Trump presidency and Republican sweep of the Senate and House of Representatives.