🔗 Share this article

Financial Market Response following Japan's Political Shift

FX analysts at prominent investment firms have reportedly closed their previous strategies for holding an optimistic view regarding the yen after Japan’s governing party chose Sanae Takaichi as the new head.

In a report titled “Leaving yen positions,” one chief of FX research commented:

Our strategy was bullish on the yen within our portfolio but are now getting out due to the party leadership vote. Takaichi’s unforeseen success creates significant doubt concerning Japan’s policy priorities and the expected date of BoJ monetary tightening.

Analysts concur that inflation is a problem within the Japanese economy, but questions are mounting on how it will be dealt with.

The strategist further cautioned that signs of fiscal dominance across Japan (where state authorities influence the BoJ’s moves) represent a downside risk.

Gold Nears the $4,000/oz Threshold

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

The immediate value of the precious metal has surged by 1% or more today to $3,944 per ounce, nearing the $4,000 per ounce level.

This indicates the gold price has jumped fifty percent since January 1st, on track for its best annual gains since the late 1970s.

Gold has been driven higher in recent months due to multiple reasons, among them growing worries that national debt levels cannot be maintained.

Sanae Takaichi’s election win in the Japanese election is likely amplifying apprehensions that leaders may try to stimulate the economy through higher borrowing and cheaper credit, and use inflation to erode the value of accumulated debt.

Financial Summary

Tokyo’s bourse has jumped to an all-time peak today, while the yen is plunging, following the top position of the country’s ruling party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Expectations that Takaichi is likely to be a PM favoring economic stimulus has ignited a rush of positive investment driving Japan’s benchmark index higher by five percent, rising by 2315 points to finish at 48,085 points.

But the yen is very much moving in the other direction – it dropped about 2 percent against the US dollar to 150.3 yen per dollar.

Sanae Takaichi, set to be Japan’s first female prime minister later this month, has long admired of Thatcher. Yet even though her social policies are right-leaning regarding social issues, Takaichi takes an un-Thatcherite approach on budget matters, and has advocate increased public expenditure and loose monetary policy.

Therefore, she’s expected to persist with Japan’s push to stimulate its economy through public investment and cheap credit, potentially causing increased price pressures and more debt.

Hence the falling currency, with traders expecting reduced rate increases by Japanese authorities relative to previous forecasts.

Japan’s government bond values have declined today, driving higher the yield on long-term Japanese bonds near to record highs, on expectations of more government loans and more persistent inflation.

Investors are assessing to what extent Takaichi’s plans will echo the “Abenomics” programme implemented by ex-prime minister Shinzo Abe.

A brokerage head noted:

Unlike in late 2024, the leader has avoided from highlighting the Abenomics program in the recent vote, but experts understand her underlying stance and her approval of Shinzo Abe’s three-pillar strategy.

Traders may therefore move to obtain clarity on that position, plus the degree of influence she may be in directing the central bank’s decisions, ahead of the BoJ’s next meeting is considered a potential turning point with a quarter-point increase considered likely...

Economic Calendar

• 8:30 AM UK time: Eurozone construction PMI for the previous month
• 9.30am BST: British construction figures for September
• 6:30 PM UK time: Bank of England governor Bailey to speak at an investment conference this year