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Financial Market Response to Japan's Ruling Party Vote

Foreign exchange experts at major investment firms have reportedly terminated their strategies to hold a long position regarding Japan’s currency after the country’s leading political group selected Takaichi to be its head.

In a report named “Leaving yen positions,” a global head of FX research explained:

Our strategy was bullish on the yen in our FX Blueprint but have now exited after the party leadership vote. Takaichi’s unforeseen success brings back significant doubt concerning the nation’s policy focus as well as the schedule for interest rate increases by the Bank of Japan.

There is agreement that inflationary pressures exist for Japan, but questions are mounting regarding how it will be addressed.

The expert further cautioned that signs of fiscal dominance within Japan (in which politicians direct the central bank’s actions) are a tail risk.

Gold Nears the $4,000 Threshold

Bullion values are reaching fresh record highs, today, during its best performance since the late 1970s.

The spot price of gold has surged by over 1% this morning to $3,944 per ounce, as it closes in on the $4,000 threshold.

This means the gold price has increased fifty percent since January 1st, likely to achieve its best annual gains since the late 1970s.

Bullion has advanced in recent months by several factors, such as rising concerns that public borrowing may be unmanageable.

Sanae Takaichi’s success in the party vote is likely amplifying concerns that leaders will attempt to boost output through higher borrowing and lower interest rates, and rely on inflation to reduce the real value of new borrowings.

Financial Summary

The Japanese equity market has surged to an all-time peak in Monday trading, as the yen falls, following the chief role of the governing party went unexpectedly to by spending advocate Sanae Takaichi.

Forecasts that Takaichi is likely to be a PM favoring economic stimulus has sparked a wave of enthusiastic buying driving the Nikkei 225 share index up by 5%, rising by over 2300 points ending at 48,085 points.

However, the currency is trending downward – it’s down about 2 percent versus the dollar reaching 150.3 against the greenback.

The incoming leader, who is expected to become the first woman to lead Japan later this month, has long admired of Thatcher. But although she is conservative regarding social issues, the new leader follows a contrasting path to fiscal policy, and promotes increased public expenditure and accommodative central bank measures.

Therefore, analysts anticipate to persist with the country’s drive to stimulate its economy via government outlays and lower interest rates, which would lead to higher inflation and increased borrowing.

Thus the weaker yen, as investors anticipate fewer interest rates hikes by Japanese authorities relative to previous forecasts.

The nation’s debt securities have declined in Monday trading, driving higher the return on long-term Japanese bonds approaching all-time highs, because of predictions of higher borrowing and sustained inflationary pressures.

Investors are evaluating how closely Takaichi’s policies will mirror the policies of Shinzo Abe pushed by ex-prime minister Abe.

A market expert explained:

Different from previous comments, Takaichi has refrained from talking up the three-arrow strategy in this LDP leadership campaign, but experts understand her underlying stance and her appreciation of Abe’s Three Arrows strategy.

Traders may therefore move to gain understanding on that position, as well as exactly how influential she may be in forming monetary policy, with the Bank of Japan’s October session is considered a key event and a rate rise potentially on the table...

Today’s Schedule

• 8:30 AM UK time: European construction data for September
• 9:30 AM UK time: British construction figures for September
• 18:30 BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at an investment conference 2025