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Market Reactions to the Japanese Ruling Party Vote

Currency strategists from major financial institutions have reportedly exited their previous recommendations to hold a long position on Japan’s currency after Japan’s governing party elected Sanae Takaichi as its chief.

In a report named “Exiting the yen,” one global head for foreign exchange commented:

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 brings back too much uncertainty concerning Japan’s policy priorities and the timing of interest rate increases by the Bank of Japan.

There is agreement that inflation is a problem for Japan, but uncertainty is now going up again on how it will be dealt with.

The analyst additionally noted indicators of government influence across Japan (where the government controls the BoJ’s moves) represent a downside risk.

Gold Nears the $4,000/oz Threshold

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

The immediate value of bullion has climbed by 1% or more today at $3,944 an ounce, as it closes in on the $4000/oz mark.

This shows gold’s value has increased half again since January 1st, likely to achieve its top annual returns since the Iranian Revolution.

Bullion has advanced in recent months because of various drivers, such as increasing fears that national debt levels may be unmanageable.

The new leader’s success in the party vote will only have reinforced worries that government officials will attempt to secure growth by borrowing more and lower interest rates, and use inflation to diminish the worth of the resulting debt.

Financial Summary

Tokyo’s bourse has rallied to a record high in Monday trading, with the currency dropping, following the top position of the LDP was unexpectedly secured by spending advocate Takaichi.

Forecasts that the new leader will be a pro-stimulus prime minister has ignited a wave of enthusiastic buying driving the Tokyo stock index up by 5%, as it gained over 2300 points to finish at just over 48,000.

But the yen is heading the opposite way – it has fallen nearly two percent versus the dollar to 150.3 yen per dollar.

Sanae Takaichi, who should become the first woman to lead Japan soon, is a long-time admirer of the former UK leader. Yet even though her social policies are right-leaning on social policy, the new leader takes an un-Thatcherite approach on budget matters, and promotes increased public expenditure and accommodative central bank measures.

As such, markets predict to persist with the national effort to spur activity through public investment and cheap credit, which would lead to increased price pressures and more debt.

Thus the weaker yen, as investors anticipate less monetary tightening in Tokyo than before.

The nation’s debt securities have also fallen in Monday trading, lifting the return on long-term Japanese bonds near to peak levels, because of predictions of more government loans and lasting price increases.

Traders are assessing the degree to which the new leader’s policies will echo the “Abenomics” programme pushed by previous leader Abe.

A market expert explained:

Unlike in late 2024, Takaichi has refrained from highlighting the Abenomics program in this LDP leadership campaign, but experts understand her core beliefs and her approval of the former PM’s Three Arrows philosophy.

Traders may therefore move for more information regarding her stance, as well as exactly how influential she may be in directing monetary policy, with the Bank of Japan’s October session is considered a potential turning point with a quarter-point increase considered likely...

Economic Calendar

• 08:30 British Summer Time: Eurozone construction PMI for last month
• 9:30 AM UK time: UK construction PMI for September
• 6.30pm BST: Central bank head the BOE’s Andrew Bailey to give keynote speech at an investment conference 2025