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Investor Sentiment to Japan's Ruling Party Vote

Foreign exchange experts at leading banks have closed their previous strategies to hold an optimistic view on Japan’s currency following the country’s leading political group elected Sanae Takaichi as its head.

In a report titled “Getting out of the yen,” a lead strategist for currency analysis stated:

Our strategy was bullish on the yen within our portfolio but have now exited after the LDP election outcome. Takaichi’s unforeseen success creates significant doubt concerning Japanese economic goals and the timing of BoJ monetary tightening.

There is agreement that inflation is a problem within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The expert also warned evidence of political control across Japan (in which politicians direct the BoJ’s moves) represent a downside risk.

Gold Closes In On the $4,000 Level

Gold prices are reaching unprecedented levels, today, in its top-performing period since 1979.

The spot price of bullion has climbed by 1% or more in recent trading at $3,944 an ounce, nearing the $4000/oz mark.

This means gold’s value has surged fifty percent since the start of January, heading for its strongest yearly performance since the late 1970s.

Bullion has advanced in recent months due to multiple reasons, among them rising concerns that public borrowing may be unmanageable.

Takaichi’s victory in Japan has further strengthened worries that leaders will attempt to boost output through higher borrowing and cheaper credit, and rely on inflation to erode the value of the resulting debt.

Trading Update

Tokyo’s bourse has surged to a record high this morning, while the yen is plunging, after the top position of the governing party was surprisingly won by fiscal dove Takaichi.

Predictions that Takaichi will be a PM favoring economic stimulus has triggered a wave of enthusiastic buying that has pushed the Tokyo stock index up by 5%, rising by over 2300 points to finish at just over 48,000.

Yet the Japanese yen is very much moving downward – it’s down nearly two percent versus the dollar at 150.3¥/$.

Takaichi, who is expected to become the first woman to lead Japan later this month, is a long-time admirer of Thatcher. However, while she holds conservative views in social matters, the new leader adopts a different strategy to fiscal policy, and has advocate increased public expenditure and easy money policies.

Therefore, analysts anticipate to persist with the national effort to boost economic growth through public investment and lower interest rates, likely resulting in increased price pressures and increased borrowing.

Thus yen depreciation, as markets predict reduced rate increases by Japanese authorities than before.

The nation’s debt securities have also fallen today, driving higher the yield on long-term Japanese bonds approaching record highs, on expectations of increased debt issuance and sustained inflationary pressures.

Investors will be calculating to what extent the new leader’s plans will resemble the “Abenomics” programme advocated by ex-prime minister Shinzo Abe.

A market expert commented:

Unlike in late 2024, Takaichi has refrained from talking up Abenomics during the party election, but many are aware her core beliefs and her support of the former PM’s Three Arrows strategy.

Traders may therefore move to obtain clarity on her policies, as well as exactly how influential she may be in forming monetary policy, with the Bank of Japan’s October session is viewed as a potential turning point and a 25bp hike seen as a real possibility...

Economic Calendar

• 8:30 AM UK time: European construction data for the previous month
• 9:30 AM UK time: British construction figures for September
• 6.30pm BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025