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Investor Sentiment to the Japanese Ruling Party Vote

Currency strategists at leading banks have exited their recommendations for holding a long position on the yen following the country’s leading political group chose Takaichi as the new head.

In a note titled “Exiting the yen,” a lead strategist for currency analysis explained:

Our strategy was bullish on the yen within our portfolio but have now exited due to the weekend’s election result. Takaichi’s unforeseen success creates significant doubt around the nation’s policy focus and the expected date of BoJ monetary tightening.

Analysts concur that rising prices are an issue within the Japanese economy, but doubts are resurfacing regarding how it will be addressed.

The expert also warned that signs of fiscal dominance in Japan (where state authorities influence the BoJ’s moves) are a tail risk.

Gold Closes In On the $4,000/oz Level

Gold prices are achieving new all-time peaks, today, in its top-performing period since 1979.

The current price of gold has surged by 1% or more today to $3,944 per ounce, as it closes in on the $4,000 per ounce level.

This indicates the gold price has jumped fifty percent from the beginning of the year, likely to achieve its top annual returns in over 45 years.

Gold has been driven higher this year due to multiple reasons, such as rising concerns that government debts cannot be maintained.

Sanae Takaichi’s victory in the Japanese election has further strengthened worries that politicians may try to secure growth by borrowing more and cheaper credit, and rely on inflation to diminish the worth of new borrowings.

Market Overview

Japan’s stock market has rallied to unprecedented levels today, as the yen falls, after the chief role of the governing party went unexpectedly to by stimulus supporter Sanae Takaichi.

Expectations that Takaichi will become a PM favoring economic stimulus has ignited a surge of optimistic trading driving the Nikkei 225 share index higher by five percent, as it gained over 2300 points to close at just over 48,000.

However, the currency is heading the opposite way – it’s down almost 2% relative to the USD reaching 150.3 against the greenback.

Takaichi, set to be the first woman to lead Japan soon, is a known fan of Margaret Thatcher. Yet even though she holds conservative views in social matters, she follows a contrasting path to fiscal policy, and supports a revival of government spending and loose monetary policy.

Therefore, markets predict to persist with Japan’s push to stimulate its economy though fiscal spending and cheap credit, potentially causing increased price pressures and increased borrowing.

Hence the falling currency, as investors anticipate less monetary tightening by Japanese authorities relative to previous forecasts.

Japan’s government bond values have declined in Monday trading, pushing up the interest rate on its 30-year debt close to record highs, due to forecasts of more government loans and more persistent inflation.

Traders are evaluating the degree to which Sanae Takaichi’s plans will resemble the “Abenomics” programme implemented by previous leader Shinzo Abe.

A market expert noted:

In contrast to last year, the leader has avoided from promoting the Abenomics program in the recent vote, but most know her core beliefs and her appreciation of the former PM’s three-arrow philosophy.

Traders may therefore move to obtain clarity on her policies, as well as exactly how influential she could be in shaping the BoJ’s policy thinking, ahead of the BoJ’s next meeting is considered a key event with a quarter-point increase potentially on the table...

Economic Calendar

• 8:30 AM UK time: European construction data for last month
• 9.30am BST: UK building sector data for September
• 6:30 PM UK time: BOE chief Bailey to deliver address at Scotland’s Global Investment Summit 2025