The foreign exchange markets kicked off the week with a swirl of uncertainty and anticipation as the U.S. dollar edged up against the yen and held steady versus the euro on Monday, October 20, 2025. Investors across the globe found themselves glued to unfolding political stories in Japan and the eurozone, all while keeping a wary eye on persistent U.S. credit risks and simmering trade tensions with China. It was, in many ways, a day that captured the jittery mood of global finance.
At the heart of the market’s attention was Japan, where the yen weakened notably amid the near certainty that Sanae Takaichi would become the nation’s first female prime minister following a decisive parliamentary vote set for Tuesday. According to Reuters, Takaichi’s anticipated rise to power, backed by a new coalition with the right-wing Japan Innovation Party, has stoked investor concerns over potential fiscal expansion. Many fear that increased government spending could weigh further on the already fragile Japanese currency.
"Market participants will now be watching closely to see what fiscal plans are put together by the new coalition government," said Lee Hardman, a senior currency economist at MUFG, as quoted by Reuters. He added that the Japan Innovation Party’s fiscal plans have been described as "moderately expansionary," an assessment that has only added to the market’s uncertainty.
The numbers told the story: the dollar rose 0.1% to 150.73 yen, after reaching as high as 151.20 earlier in the trading session, according to LSEG data cited by Reuters. Some outlets, such as Reuters’ additional reporting, noted a similar uptick of 0.08% to 150.71 yen. The movement, though modest, was enough to signal that investors were hedging their bets as Japan’s political landscape shifted.
Yet, the yen’s slide wasn’t without resistance. Bank of Japan board member Hajime Takata, who had previously voted against keeping rates steady in September, reiterated his case for resuming rate hikes on Monday. His comments provided a measure of support for the yen, suggesting that the central bank’s next move would be crucial. The Bank of Japan is set to decide monetary policy on October 30, and market-implied odds of a quarter-point rate increase stood at 23%, according to LSEG data.
Meanwhile, Japan’s stock market was buoyant. The Nikkei index surged more than 3% to close at an all-time peak, a move widely attributed to expectations of an expansionary fiscal policy under the incoming government. As Reuters reported, this optimism was palpable among investors betting that government spending could boost corporate earnings and economic growth, at least in the short term.
Across the Sea of Japan, the euro’s performance was steadier but still tinged with caution. The common currency edged higher against the dollar as political tensions in France eased, though markets remained wary. The French government’s decision to freeze pension reform offered only a temporary reprieve, complicating already fragile budget talks. As of Monday, the euro was flat at $1.1653, according to Reuters, while another Reuters report pegged it slightly lower at $1.164. The difference was marginal, but the underlying sentiment was clear: investor caution lingered, and markets had yet to fully price out French political risk from the euro.
"This week the focus should stay on the U.S., and a further souring of credit sentiment could send the euro on a path to $1.180," said Francesco Pesole, a foreign exchange strategist at ING, as quoted by Reuters. It was a reminder that, even as Europe’s political storms abated, attention was quickly shifting across the Atlantic.
In the United States, the mood was cautiously optimistic following a turbulent week. U.S. stock indexes ended higher on Friday, October 17, after President Donald Trump said his proposed 100% tariffs on China would not be sustainable. This statement, along with upbeat quarterly results from regional banks, helped ease some of the credit risk concerns that had hung over the market. As reported by Reuters, Wall Street futures were up 0.34% on Monday, reflecting a tentative return to risk appetite.
The U.S. dollar index—a measure of the greenback’s value relative to a basket of major currencies—rose 0.05% to 98.58. It had hit 98.025 on Friday, its lowest level since October 6. The index’s resilience, however, was expected to be tested by a trio of challenges: the ongoing government shutdown, U.S.-China trade tensions, and the lingering effects of tariffs on household income and corporate margins.
"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), in comments reported by Reuters. He added that U.S.-China tensions were a second major concern, while the tariffs already in effect were "slowing real household income growth and weighing on corporate margins." Barclays, for its part, warned that with no clear catalyst to end the federal government shutdown, the stoppage could drag well into November, intensifying both political and economic pressures.
Not all the news was gloomy. The Australian dollar got a boost, rising 0.1% to $0.6491 on Monday (and by 0.48% to $0.652, according to another Reuters report), buoyed by positive economic data out of China. Official figures showed that China’s economy grew 1.1% in the third quarter, beating forecasts, with industrial output rising by 6.5%. While the annual growth rate of 4.8% marked the weakest pace in a year, it was still enough to keep China on track to meet its official target of around 5%. This resilience in China’s economy offered some reassurance to markets battered by months of tariff talk and trade war anxiety.
As for the banking sector, the immediate danger seemed to have passed. "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," said David Morrison, senior market analyst at Trade Nation, in a note cited by Reuters. Still, investors were keeping a close watch on upcoming earnings reports for any signs of broader strain.
In the end, Monday’s currency and equity moves underscored just how interconnected—and unpredictable—the global financial system remains. From Tokyo to Paris to New York, the week began with markets on edge, parsing every headline for clues about what might come next. As political and economic storylines continue to unfold, investors will no doubt remain vigilant, knowing that in today’s world, fortunes can change in the blink of an eye.
