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Market Reactions to Japan's Political Shift

Foreign exchange experts from prominent financial institutions have closed their recommendations for holding a bullish stance regarding the yen after the country’s leading political group chose Sanae Takaichi as its head.

In a report named “Getting out of the yen,” a global head for currency analysis stated:

We held a long yen position within our portfolio but have now exited due to the weekend’s election result. Sanae Takaichi’s surprise victory creates significant doubt regarding the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

There is agreement that inflation is a problem for Japan, but doubts are resurfacing regarding how it will be addressed.

The expert additionally noted that signs of fiscal dominance within Japan (in which politicians direct the BoJ’s moves) represent a downside risk.

Gold Closes In On $4,000 per ounce Mark

The gold price are reaching unprecedented levels, today, during its best performance since 1979.

The immediate value of bullion has climbed more than 1 percent this morning to $3,944 per ounce, approaching the $4,000 per ounce level.

This indicates bullion prices has surged by 50% since January 1st, likely to achieve its top annual returns since the late 1970s.

The metal has risen in recent months due to multiple reasons, including rising concerns that government debts are unsustainable.

Takaichi’s success in the party vote will only have reinforced concerns that government officials may try to secure growth through higher borrowing and lower interest rates, and depend on rising prices to reduce the real value of the resulting debt.

Market Overview

Tokyo’s bourse has jumped to a record high in Monday trading, with the currency dropping, after the top position of the country’s ruling party was surprisingly won by fiscal dove Sanae Takaichi.

Expectations that Sanae Takaichi is likely to be a leader supporting government spending has triggered a surge of optimistic trading driving the Tokyo stock index higher by five percent, adding 2315 points ending at just over 48,000.

Yet the Japanese yen is very much moving the opposite way – it’s down about 2 percent relative to the USD at 150.3¥/$.

Sanae Takaichi, who should become the first woman to lead Japan later this month, is a known fan of Margaret Thatcher. Yet even though she is conservative regarding social issues, she follows a contrasting path to fiscal policy, and promotes higher state investment and accommodative central bank measures.

Consequently, analysts anticipate to continue the country’s drive to stimulate its economy through public investment and cheap credit, likely resulting in increased price pressures and increased borrowing.

As a result yen depreciation, as markets predict fewer interest rates hikes by Japanese authorities than before.

Japanese long-term bond prices are also down this session, driving higher the interest rate on thirty-year bonds close to peak levels, because of predictions of higher borrowing and lasting price increases.

Investors are evaluating to what extent the new leader’s policies will resemble the policies of Shinzo Abe implemented by ex-prime minister Abe.

A brokerage head explained:

Unlike in late 2024, Takaichi has refrained from highlighting the Abenomics program in this LDP leadership campaign, but most know her fundamental position and her support of the former PM’s three-pillar approach.

Investors might thus seek for more information on her policies, plus the degree of influence she may be in directing the BoJ’s policy thinking, given the October BoJ meeting is seen as a potential turning point and a 25bp hike considered likely...

Market Agenda

• 8.30am BST: Eurozone construction PMI for the previous month
• 09:30 BST: UK construction PMI for September
• 6.30pm BST: Central bank head Andrew Bailey to speak at a financial forum 2025