By Rae Wee
SINGAPORE (Reuters) -The yen languished near a three-month trough on Friday and was headed for a fourth straight weekly loss, ahead of an election in Japan over the weekend that is likely to complicate the Bank of Japan's (BOJ) policy normalisation plans.
In the broader market, the dollar held broadly steady and was on course for yet another weekly gain, underpinned by tempered expectations of aggressive Federal Reserve rate cuts and as market bets for a possible return of Donald Trump as U.S. president ramp up.
Japanese voters will vote on Sunday for a general election, with opinion polls showing the ruling Liberal Democratic Party (LDP) could lose its long-held dominance.
The uncertainty and prospect of political instability could have implications for the BOJ's rate hike path, as it tries to steer a smooth lift-off from near-zero interest rates. The central bank next meets on Oct. 30-31.
The yen was last 0.1% higher at 151.69 per dollar, but was looking at a 1.4% loss for the week.
It hardly budged on slightly better than expected Tokyo inflation data released earlier on Friday, as core consumer prices came in below the BOJ's 2% target for the first time in five months.
"There is some suggestion that if the LDP loses its majority - which I gather, is a distinct possibility, then there's a possibility that further muddies the water as far as BOJ policy normalisation is concerned," said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY).
"If that is the result, then I suppose there's some knee-jerk potential for further yen weakening if the market takes the view that this could certainly push the next rate rise well into next year, for example."
The yen has fallen roughly 5.3% for the month thus far, setting it up for its worst monthly decline since April 2022.
The move lower in the yen, particularly as it has once again weakened past the key 150 per dollar level, has left traders on alert for any intervention from Japanese authorities to shore up the currency.
A senior Japanese finance ministry official said the country's Finance Minister Katsunobu Kato and U.S. Treasury Secretary Janet Yellen discussed recent exchange-rate moves, among other topics, in a bilateral meeting held on Thursday.
DOLLAR DOMINANCE
The dollar firmed a touch on Friday, steadying after a slight fall in the previous session on the back of lower U.S. Treasury yields. [US/]
Against the greenback, the euro fell 0.05% to $1.0821, some distance away from an over three-month low hit earlier this week.
Still, the single currency remained on track for a weekly loss of more than 0.3%.
Data on Thursday showed euro zone business activity stalled again this month, though the contraction in Germany - Europe's largest economy - was less steep than the previous month.
"Looking ahead for the euro zone as a whole, the short-term outlook remains grim," said Nick Rees, senior FX market analyst at Monex Europe.
"Demand conditions remain weak, the labour market is beginning to unwind, and both price pressures and business confidence are falling."
Sterling dipped 0.1% to $1.29645, but also edged away from a two-month trough of $1.2908 hit on Wednesday. It was headed for a 0.5% weekly fall.
Elsewhere, the Australian dollar eased 0.32% to $0.6620, while the New Zealand dollar edged 0.38% lower to $0.5993.
The two Antipodean currencies were set to lose nearly 1% each for the week, weighed down in part by a stronger dollar and as uncertainty over the upcoming U.S. election dampened risk appetite.
The dollar index was last little changed at 104.04, after having scaled a roughly three-month high of 104.57 earlier in the week.
It was eyeing a rise of more than 0.5% this week, which would mark a fourth straight week of gains.