The yen hovered near a three-month low on Friday, marking its fourth consecutive weekly decline. All eyes are now on Japan’s Sunday election, which could challenge the ruling Liberal Democratic Party’s (LDP) dominance and, in turn, complicate the Bank of Japan’s (BOJ) policy plans.

The BOJ has been cautiously steering toward a lift-off from near-zero interest rates, with its next meeting scheduled for Oct. 30-31. However, political uncertainty and potential instability could muddy this path, particularly if the LDP loses its stronghold. In the meantime, Tokyo’s inflation data offered mixed signals, showing a slight rise but still falling below the BOJ’s 2% target—adding to the ambiguity around the bank’s next steps.

Elsewhere, the U.S. dollar pulled back slightly, following a drop in Treasury yields but remaining on track for a weekly gain. The broader market’s focus now shifts to how Japan’s election outcome could influence the BOJ’s rate strategy. Will an unexpected result alter the BOJ’s trajectory? Investors are poised for potential surprises.