🔗 Share this article

Financial Market Response following the Japanese Political Shift

Foreign exchange experts at leading financial institutions have exited their positions for holding an optimistic view on Japan’s currency following Japan’s leading political group selected Takaichi as the new head.

In commentary titled “Exiting the yen,” one chief for currency analysis explained:

We held a long yen position in our FX Blueprint but are now getting out after the LDP election outcome. Sanae Takaichi’s surprise victory creates renewed unpredictability around the nation’s policy focus as well as the schedule for interest rate increases by the Bank of Japan.

Analysts concur that rising prices are an issue in Japan, but doubts are resurfacing on how it will be dealt with.

The expert also warned that signs of fiscal dominance within Japan (where the government controls the BoJ’s moves) pose a potential danger.

Gold Approaches the $4,000/oz Level

The gold price are achieving new all-time peaks, today, in its strongest year since 1979.

The immediate value of the precious metal has climbed more than 1 percent in recent trading reaching $3,944/oz, approaching the $4,000 per ounce level.

This indicates the gold price has jumped by 50% since January 1st, on track for its strongest yearly performance in over 45 years.

Bullion has advanced throughout the year due to multiple reasons, including growing worries that government debts cannot be maintained.

Sanae Takaichi’s victory in the Japanese election is likely amplifying concerns that leaders will attempt to stimulate the economy by borrowing more and lower interest rates, and use inflation to reduce the real value of the resulting debt.

Trading Update

Tokyo’s bourse has rallied to unprecedented levels today, while the yen is plunging, after the leadership of the governing party went unexpectedly to by spending advocate Sanae Takaichi.

Expectations that the new leader will be a leader supporting government spending has triggered a wave of enthusiastic buying lifting Japan’s benchmark index to a 5% gain, as it gained more than 2300 points to close at 48,085.

Yet the Japanese yen is heading downward – it has fallen almost 2% versus the dollar at 150.3¥/$.

Sanae Takaichi, set to be the nation’s initial woman PM in the coming weeks, has long admired of Margaret Thatcher. Yet even though her social policies are right-leaning in social matters, Takaichi adopts a different strategy to fiscal policy, and has advocate higher state investment and loose monetary policy.

Consequently, analysts anticipate to persist with Japan’s push to boost economic growth via government outlays and lower interest rates, likely resulting in rising inflation and greater borrowing.

As a result the falling currency, with traders expecting fewer interest rates hikes by Japanese authorities relative to previous forecasts.

Japan’s government bond values have also fallen today, driving higher the return on thirty-year bonds approaching record highs, because of predictions of more government loans and sustained inflationary pressures.

Traders will be calculating to what extent Takaichi’s policies will resemble the Abenomics strategy implemented by previous leader Abe.

A brokerage head commented:

Different from previous comments, Takaichi has refrained from highlighting Abenomics during the party election, but many are aware her core beliefs and her appreciation of Abe’s three-arrow approach.

Markets could then push to obtain clarity on that position, as well as exactly how influential she might become in directing the BoJ’s policy thinking, given the October BoJ meeting is viewed as a key event and a rate rise considered likely...

Today’s Schedule

• 8.30am BST: Eurozone construction PMI for September
• 9.30am BST: UK building sector data for the last month
• 6.30pm BST: Central bank head Andrew Bailey to deliver address at Scotland’s Global Investment Summit 2025