The yen settled near three-month lows on Tuesday as uncertainty about the country's political and monetary prospects increased due to the loss of the parliamentary majority of Japan's ruling coalition in last weekend's elections.
Japanese Finance Minister Katsunobu Kato also stressed today that the authorities will be vigilant in dealing with foreign exchange movements, especially those led by speculators.
The country is likely to see a period of skirmishes to secure a coalition after the Liberal Democratic Party of Japan and its junior partner Komeito won 215 seats in the Lower House of Parliament, short of the 233 needed for a majority.
The Bank of Japan will also announce its decision on monetary policy on Thursday, as the central bank is expected to keep interest rates steady.
As for the US dollar, the dollar stabilized on Tuesday and traded in a narrow range as investors await the central bank's decision on monetary policy, as investors are reluctant to take positions before the release of data.
It also strengthened the growing market bets on the victory of Republican candidate Donald Trump in the US presidential election next week.
Trump's policies on tariffs, taxes and immigration are perceived as inflationary, therefore they are negative for bonds and positive for the dollar.
The focus this week will also be on the reading of the core Personal Consumption Expenditures price index, the Fed's preferred measure of inflation, which is scheduled for release on Thursday, followed by the closely watched nonfarm payrolls report on Friday.
Besides the strong US economic data and expectations of Trump's victory, also the political uncertainty in Japan may put pressure on the dollar-yen pair to rise in the coming weeks.
The pair is expected to complete the Harmonicshark model on a daily basis.
