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Financial Market Response to the Japanese Political Shift

Currency strategists from prominent financial institutions have terminated their positions for holding a bullish stance regarding the yen following the country’s ruling party chose Sanae Takaichi to be its head.

In a report named “Getting out of the yen,” one lead strategist for currency analysis explained:

We went long JPY as part of our strategy but have closed this due to the party leadership vote. Takaichi’s unforeseen success brings back renewed unpredictability regarding the nation’s policy focus and the expected date of interest rate increases by the Bank of Japan.

Experts agree that inflation is a problem in Japan, but questions are mounting on how it will be dealt with.

The strategist further cautioned that signs of fiscal dominance across Japan (in which politicians direct the BoJ’s moves) represent a downside risk.

Gold Closes In On the $4,000 Level

The gold price are reaching fresh record highs, today, during its best performance since the late 1970s.

The spot price of gold has climbed by over 1% this morning to $3,944 per ounce, nearing the $4,000 threshold.

This indicates the gold price has jumped by 50% since the start of January, on track for its best annual gains since the Iranian Revolution.

Bullion has advanced this year due to multiple reasons, such as growing worries that public borrowing may be unmanageable.

The new leader’s success in the party vote will only have reinforced worries that politicians will attempt to stimulate the economy via increased debt and cheaper credit, and use inflation to erode the value of accumulated debt.

Trading Update

Tokyo’s bourse has rallied to an all-time peak this morning, as the yen falls, after the top position of the LDP was unexpectedly secured by stimulus supporter Sanae Takaichi.

Expectations that the new leader will become a PM favoring economic stimulus has triggered a surge of optimistic trading driving the Nikkei 225 share index to a 5% gain, rising by over 2300 points to finish at 48,085 points.

However, the currency is trending downward – it has fallen about 2 percent versus the dollar at 150.3¥/$.

Sanae Takaichi, who should become Japan’s first female prime minister later this month, is a long-time admirer of Margaret Thatcher. But although she is conservative on social policy, she adopts a different strategy on budget matters, and has advocate increased public expenditure and loose monetary policy.

As such, she’s expected to continue the country’s drive to spur activity through public investment and lower interest rates, which would lead to increased price pressures and more debt.

As a result the weaker yen, as markets predict reduced rate increases from the Bank of Japan compared to earlier expectations.

Japanese long-term bond prices have declined in Monday trading, pushing up the yield on its 30-year debt close to record highs, on expectations of higher borrowing and lasting price increases.

Traders are evaluating the degree to which the new leader’s plans will resemble the policies of Shinzo Abe implemented by former PM Shinzo Abe.

One analyst explained:

Different from previous comments, she has not engaged from highlighting Abenomics in the recent vote, but most know her fundamental position and her support of Abe’s three-arrow philosophy.

Investors might thus seek for more information regarding her stance, plus the degree of influence she could be in forming the BoJ’s policy thinking, given the October BoJ meeting is viewed as a “live” affair and a rate rise seen as a real possibility...

Market Agenda

• 8:30 AM UK time: Euro area building activity for the previous month
• 9.30am BST: British construction figures for September
• 18:30 BST: BOE chief Bailey to deliver address at an investment conference 2025