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Investor Sentiment following the Japanese Ruling Party Vote

Currency strategists at prominent financial institutions have terminated their previous recommendations for holding a long position regarding Japan’s currency following the country’s leading political group chose Sanae Takaichi as the new chief.

In commentary called “Leaving yen positions,” 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. The unexpected win by Takaichi reintroduces too much uncertainty around Japanese economic goals and the expected date of interest rate increases by the Bank of Japan.

Analysts concur that rising prices are an issue in Japan, but questions are mounting about the approach to managing it.

The analyst also warned indicators of government influence within Japan (in which politicians direct the BoJ’s moves) are a tail risk.

Gold Approaches $4,000 per ounce Mark

Bullion values are hitting new all-time peaks, today, in its strongest year since 1979.

The spot price of bullion has climbed by 1% or more this morning reaching $3,944/oz, as it closes in on the $4,000 threshold.

This means bullion prices has jumped half again from the beginning of the year, likely to achieve its strongest yearly performance in over 45 years.

Gold has been driven higher this year because of various drivers, including rising concerns that public borrowing may be unmanageable.

Sanae Takaichi’s victory in Japan will only have reinforced concerns that politicians will attempt to boost output via increased debt and reduced rates, and rely on inflation to reduce the real value of new borrowings.

Financial Summary

Japan’s stock market has surged to unprecedented levels today, as the yen falls, after the chief role of the LDP was unexpectedly secured by stimulus supporter Sanae Takaichi.

Forecasts that the new leader is likely to be a PM favoring economic stimulus has triggered a surge of optimistic trading driving the Nikkei 225 share index higher by five percent, rising by more than 2300 points ending at 48,085 points.

But the yen is very much moving downward – it dropped almost 2% against the US dollar at 150.3¥/$.

Takaichi, who is expected to become the first woman to lead Japan soon, is a known fan of the former UK leader. But although she holds conservative views on social policy, Takaichi adopts a different strategy on budget matters, and supports higher state investment and easy money policies.

As such, markets predict to continue Japan’s push to boost economic growth though fiscal spending and cheap credit, which would lead to increased price pressures and greater borrowing.

Hence the falling currency, as investors anticipate reduced rate increases from the Bank of Japan relative to previous forecasts.

Japan’s government bond values have declined this session, lifting the interest rate on long-term Japanese bonds close to peak levels, due to forecasts of increased debt issuance and lasting price increases.

Investors will be calculating how closely Sanae Takaichi’s policies will resemble the Abenomics strategy advocated by ex-prime minister Abe.

A brokerage head explained:

Unlike in late 2024, the leader has avoided from promoting Abenomics in this LDP leadership campaign, but experts understand her underlying stance and her appreciation of the former PM’s Three Arrows philosophy.

Investors might thus seek for more information on her policies, as well as exactly how influential she may be in shaping the central bank’s decisions, with the Bank of Japan’s October session is considered a key event and a rate rise seen as a real possibility...

Today’s Schedule

• 08:30 British Summer Time: Eurozone construction PMI for last month
• 09:30 BST: UK building sector data for September
• 18:30 BST: Central bank head Bailey to deliver address at Scotland’s Global Investment Summit 2025