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Financial Market Response following the Japanese Ruling Party Vote

Currency strategists from leading financial institutions have reportedly exited their previous strategies to hold a long position on the yen after the country’s governing party selected Sanae Takaichi as its leader.

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

We held a long yen position as part of our strategy but have now exited due to the weekend’s election result. Sanae Takaichi’s surprise victory reintroduces renewed unpredictability concerning the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflationary pressures exist within the Japanese economy, but uncertainty is now going up again regarding how it will be addressed.

The expert additionally noted evidence of political control across Japan (where the government controls the central bank’s actions) are a tail risk.

Gold Nears the $4,000/oz Level

Bullion values are achieving new all-time peaks, once more, in its top-performing period since 1979.

The current price of bullion has jumped by 1% or more this morning at $3,944 an ounce, nearing the $4,000 per ounce level.

This shows the gold price has increased by 50% since January 1st, heading for its top annual returns in over 45 years.

Bullion has advanced throughout the year because of various drivers, among them growing worries that government debts are unsustainable.

Sanae Takaichi’s victory in the party vote has further strengthened apprehensions that politicians will attempt to secure growth via increased debt and lower interest rates, and use inflation to diminish the worth of new borrowings.

Trading Update

The Japanese equity market has jumped to an all-time peak today, with the currency dropping, after the top position of the governing party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that Takaichi will be a PM favoring economic stimulus has triggered a rush of positive investment lifting the Nikkei 225 share index to a 5% gain, adding 2315 points to close at 48,085 points.

Yet the Japanese yen is heading the opposite way – it’s down nearly two percent against the US dollar reaching 150.3 against the greenback.

Takaichi, who is expected to become Japan’s first female prime minister soon, is a known fan of Margaret Thatcher. However, while she is conservative in social matters, the new leader adopts a different strategy to fiscal policy, and has advocate a revival of government spending and accommodative central bank measures.

As such, she’s expected to continue the national effort to stimulate its economy though fiscal spending and reduced borrowing costs, which would lead to rising inflation and greater borrowing.

Hence yen depreciation, with traders expecting less monetary tightening by Japanese authorities than before.

The nation’s debt securities are also down in Monday trading, pushing up the interest rate on thirty-year bonds close to peak levels, on expectations of more government loans and sustained inflationary pressures.

The markets are evaluating to what extent Takaichi’s policies will mirror the policies of Shinzo Abe implemented by ex-prime minister Shinzo Abe.

A brokerage head explained:

Unlike in late 2024, Takaichi has refrained from promoting Abenomics in the recent vote, but many are aware her underlying stance and her support of Shinzo Abe’s three-pillar approach.

Traders may therefore move for more information regarding her stance, plus the degree of influence she could be in shaping the central bank’s decisions, given the October BoJ meeting is seen as a key event and a rate rise potentially on the table...

Today’s Schedule

• 8:30 AM UK time: Euro area building activity for last month
• 09:30 BST: UK construction PMI for September
• 18:30 BST: BOE chief Andrew Bailey to speak at Scotland’s Global Investment Summit 2025