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Financial Market Response following Japan's Political Shift

Currency strategists from leading financial institutions have closed their strategies to hold a long position regarding the Japanese yen following Japan’s ruling party selected Takaichi to be its leader.

In a report called “Exiting the yen,” a chief for currency analysis explained:

We went long JPY in our FX Blueprint but have now exited following the party leadership vote. Takaichi’s unforeseen success creates significant doubt concerning Japan’s policy priorities and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that rising prices are an issue for Japan, but questions are mounting about the approach to managing it.

The strategist further cautioned that signs of fiscal dominance in Japan (where state authorities influence monetary policy decisions) are a tail risk.

Gold Approaches $4,000 per ounce Level

The gold price are hitting unprecedented levels, once more, during its best performance since 1979.

The immediate value of gold has climbed by 1% or more today reaching $3,944/oz, as it closes in on the $4,000 per ounce level.

This shows the gold price has increased fifty percent from the beginning of the year, likely to achieve its best annual gains since the late 1970s.

Bullion has advanced in recent months due to multiple reasons, such as increasing fears that government debts may be unmanageable.

Sanae Takaichi’s victory in the Japanese election is likely amplifying worries that leaders could seek to boost output via increased debt and lower interest rates, and rely on inflation to diminish the worth of new borrowings.

Market Overview

Tokyo’s bourse has rallied to a record high in Monday trading, while the yen is plunging, following the chief role of the LDP was surprisingly won by stimulus supporter Takaichi.

Predictions that the new leader will be a PM favoring economic stimulus has triggered a surge of optimistic trading driving Japan’s benchmark index to a 5% gain, as it gained more than 2300 points to finish at 48,085.

But the yen is very much moving downward – it dropped nearly two percent against the US dollar to 150.3 yen per dollar.

Takaichi, who is expected to become Japan’s first female prime minister in the coming weeks, has long admired of Thatcher. Yet even though her social policies are right-leaning on social policy, Takaichi adopts a different strategy in economic policy, and promotes a revival of government spending and easy money policies.

Therefore, she’s expected to persist with the national effort to boost economic growth through public investment and lower interest rates, potentially causing increased price pressures and increased borrowing.

Thus the weaker yen, as markets predict fewer interest rates hikes in Tokyo than before.

Japanese long-term bond prices have also fallen this session, pushing up the return on long-term Japanese bonds approaching all-time highs, on expectations of higher borrowing and more persistent inflation.

Investors are assessing to what extent the new leader’s plans will mirror the policies of Shinzo Abe pushed by ex-prime minister Abe.

One analyst commented:

Different from previous comments, the leader has avoided from promoting the three-arrow strategy in the recent vote, but many are aware her fundamental position and her support of the former PM’s three-pillar philosophy.

Investors might thus seek for more information regarding her stance, and how much impact she could be in forming the central bank’s decisions, ahead of the BoJ’s next meeting is viewed as a key event and a 25bp hike considered likely...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for September
• 09:30 BST: British construction figures for September
• 6:30 PM UK time: BOE chief Bailey to give keynote speech at an investment conference 2025