Published by Global Banking & Finance Review®
Posted on October 20, 2025
3 min readLast updated: January 21, 2026
Add as preferred source on GoogleThe dollar fluctuates due to political and trade tensions, with focus on Japan's fiscal policy and U.S. credit risk concerns.
By Hannah Lang
(Reuters) -The dollar edged higher against the yen on Monday as investors shifted their focus to political developments in Japan and the euro area, while U.S. credit risk concerns lingered.
The yen edged lower as hardline conservative Sanae Takaichi is almost certain to become Japan's first female prime minister after a decisive parliamentary vote.
Her expected premiership, backed by a new coalition with the right-wing Japan Innovation Party, has raised investor concerns over potential fiscal expansion, which could weigh on the yen.
"Market participants will now be watching closely to see what fiscal plans are put together by the new coalition government," said MUFG senior currency economist Lee Hardman.
The dollar was up 0.08% to 150.710 yen.
Bank of Japan board member Hajime Takata, who voted against keeping rates steady in September, reiterated on Monday his case for resuming hikes, giving the Japanese currency some support.
Japan's benchmark Nikkei stock index closed more than 3% higher, hitting an all-time peak. [.T]
The BOJ next decides monetary policy on October 30, with market-implied odds of a quarter-point rate increase at 23%, LSEG data shows.
The euro edged slightly higher against the dollar as French political tensions eased, but investor caution lingered.
Markets have yet to fully price out French risk from the euro, with the government’s decision to freeze pension reform offering only a temporary political breather.
The euro was down 0.06% at $1.164.
U.S. stock indexes ended higher on Friday after U.S. President Donald Trump said his proposed 100% tariffs on China would not be sustainable, while upbeat quarterly results from regional banks helped ease credit risk concerns.
After a turbulent week in which some regional U.S. banks flagged bad loan and fraud issues, investors are now awaiting more earnings to check for signs of wider sector strain.
The U.S. dollar index, a measure of its value relative to a basket of other major foreign currencies, rose 0.053% to 98.587. It hit 98.025 on Friday, its lowest level since October 6.
"The immediate danger seems to have passed as investors are convinced that the bankruptcies, bad loans and fraud accusations are all isolated incidents, and not part of widespread failings within the banking sector," David Morrison, senior market analyst at Trade Nation, said in a note.
Economists said the dollar's resilience will be tested on multiple fronts.
"One, the government shutdown is hurting economic activity, both directly and indirectly," said Klaus Baader, global chief economist at Societe Generale Corporate and Investment Banking (SGCIB), adding U.S.-China tensions were a second major concern.
"Three, the (import) tariffs that are already in effect continue to feed through, slowing real household income growth and weighing on corporate margins," he said.
Barclays flagged that, with no obvious catalyst to end the federal government shutdown in the next few weeks, the stoppage may extend well into November, when political and economic pressures should intensify.
The Australian dollar rose 0.48% to $0.652 on Monday, cheered by data from top trade partner China showing its economy reasonably resilient to U.S. tariffs.
Official data showed China's economy grew 1.1% in the third quarter, topping forecasts, while industrial output also beat with a 6.5% rise. Although the 4.8% annual growth rate marked the weakest pace in a year, it kept China on track to meet its official target of around 5%.
(Reporting by Hannah Lang; additional reporting by Stefano Rebaudo; Editing by Sam Holmes, Emelia Sithole-Matarise, Alexander Smith and Cynthia Osterman)
Foreign exchange refers to the global marketplace for trading national currencies against one another. It is essential for international trade and investment.
Monetary policy is the process by which a central bank manages the supply of money, often targeting inflation or interest rates to ensure price stability.
Economic growth is the increase in the production of goods and services in an economy over a period, typically measured by GDP.
Currency fluctuation refers to the changes in the value of one currency in relation to another, influenced by various economic factors.
The U.S. dollar index measures the value of the U.S. dollar relative to a basket of foreign currencies, indicating its strength in the global market.
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