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Market Reactions to Japan's Ruling Party Vote

Foreign exchange experts at major investment firms have reportedly exited their positions for holding an optimistic view on the Japanese yen following the country’s leading political group chose Takaichi as its head.

In a note named “Leaving yen positions,” a lead strategist for foreign exchange explained:

We went long JPY in our FX Blueprint but have now exited after the weekend’s election result. The unexpected win by Takaichi reintroduces too much uncertainty regarding Japan’s policy priorities and the timing of interest rate increases by the Bank of Japan.

There is agreement that inflationary pressures exist within the Japanese economy, but questions are mounting about the approach to managing it.

The strategist additionally noted indicators of government influence in Japan (where state authorities influence monetary policy decisions) pose a potential danger.

Gold Nears the $4,000/oz Level

Gold prices are achieving unprecedented levels, once more, in its top-performing period since the late 1970s.

The immediate value of bullion has jumped by 1% or more today reaching $3,944/oz, nearing the $4,000 threshold.

This indicates bullion prices has jumped fifty percent from the beginning of the year, heading for its best annual gains since the Iranian Revolution.

Bullion has advanced throughout the year by several factors, including growing worries that government debts cannot be maintained.

Sanae Takaichi’s victory in Japan has further strengthened concerns that government officials may try to boost output by borrowing more and cheaper credit, and use inflation to diminish the worth of new borrowings.

Market Overview

Tokyo’s bourse has surged to an all-time peak in Monday trading, as the yen falls, following the leadership of the country’s ruling party went unexpectedly to by stimulus supporter Takaichi.

Forecasts that Takaichi will become a PM favoring economic stimulus has triggered a rush of positive investment that has pushed Japan’s benchmark index to a 5% gain, rising by 2315 points to close at 48,085.

Yet the Japanese yen is trending the opposite way – it has fallen nearly two percent relative to the USD to 150.3 yen per dollar.

The incoming leader, who is expected to become the nation’s initial woman PM later this month, is a known fan of the former UK leader. However, while her social policies are right-leaning regarding social issues, the new leader follows a contrasting path on budget matters, and supports a revival of government spending and loose monetary policy.

Consequently, she’s expected to maintain the country’s drive to stimulate its economy via government outlays and reduced borrowing costs, which would lead to higher inflation and greater borrowing.

As a result the weaker yen, as markets predict fewer interest rates hikes from the Bank of Japan relative to previous forecasts.

The nation’s debt securities have declined today, driving higher the yield on thirty-year bonds approaching all-time highs, on expectations of increased debt issuance and lasting price increases.

Traders will be calculating how closely the new leader’s policies will mirror the Abenomics strategy implemented by previous leader Shinzo Abe.

A market expert explained:

Different from previous comments, she has not engaged from promoting Abenomics in this LDP leadership campaign, but experts understand her fundamental position and her approval of the former PM’s Three Arrows strategy.

Investors might thus seek to obtain clarity on her policies, as well as exactly how influential she might become in directing the BoJ’s policy thinking, with the Bank of Japan’s October session is considered a “live” affair with a quarter-point increase considered likely...

Economic Calendar

• 8.30am BST: European construction data for last month
• 09:30 BST: British construction figures for September
• 6.30pm BST: BOE chief Bailey to deliver address at a financial forum 2025