Asian Currencies Decline Amid Political Uncertainty and Dollar Strength

Asian Currencies Decline Amid Political Uncertainty

Most Asian currencies faced declines on Monday, with the Japanese yen hitting a three-month low. The yen's weakness is attributed to the ruling Liberal Democratic Party's (LDP) loss of a parliamentary majority, diminishing the likelihood of higher interest rates in Japan.

Political Instability Impacts Yen Value

The yen was the weakest performer in Asia, with the USDJPY pair surging 0.9% to 153.68 yen, its highest level since late July. Local media reports indicated that the LDP failed to secure a majority in the recent parliamentary elections, prompting fears of increased political uncertainty. Traders speculate this scenario will inhibit the Bank of Japan (BOJ) from raising interest rates further.

The BOJ is anticipated to maintain its current interest rate during its meeting later this week, following two hikes earlier in 2024. Recent data also show a slowdown in private spending and inflation in Japan, compounding concerns about the yen's stability.

Broader Market Trends

Despite a more cautious risk appetite, the dollar rose to near three-month highs, buoyed by traders’ expectations of reduced U.S. interest rate cuts. The dollar index increased by 0.3%, as key U.S. economic readings—including house prices, GDP, and the PCE price index—are set to be released this week.

In Asian markets, the Chinese yuan rose 0.2%, buoyed by anticipated positive data from China's purchasing managers index. Meanwhile, the Australian dollar fell by 0.3%, and the South Korean won remained stable.