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Financial Market Response following Japan's Political Shift

Currency strategists from major financial institutions have closed their previous strategies for holding a long position regarding Japan’s currency after the country’s leading political group selected Sanae Takaichi as the new leader.

In a note titled “Getting out of the yen,” a lead strategist of FX research stated:

Our strategy was bullish on the yen within our portfolio but have now exited due to the LDP election outcome. Takaichi’s unforeseen success brings back renewed unpredictability concerning Japanese economic goals and the timing of BoJ monetary tightening.

Experts agree that rising prices are an issue in Japan, but uncertainty is now going up again about the approach to managing it.

The analyst additionally noted evidence of political control within Japan (where the government controls the central bank’s actions) pose a potential danger.

Gold Closes In On the $4,000 Threshold

The gold price are reaching fresh record highs, again, during its best performance since the late 1970s.

The spot price of gold has jumped by over 1% in recent trading reaching $3,944/oz, nearing the $4,000 per ounce level.

This indicates the gold price has surged fifty percent since January 1st, on track for its strongest yearly performance since the late 1970s.

The metal has risen throughout the year by several factors, including growing worries that national debt levels may be unmanageable.

Takaichi’s victory in Japan will only have reinforced worries that politicians will attempt to secure growth through higher borrowing and lower interest rates, and rely on inflation to reduce the real value of the resulting debt.

Financial Summary

Tokyo’s bourse has rallied to unprecedented levels this morning, while the yen is plunging, following the leadership of the governing party went unexpectedly to by stimulus supporter Sanae Takaichi.

Predictions that the new leader will be a PM favoring economic stimulus has ignited a wave of enthusiastic buying lifting the Tokyo stock index higher by five percent, rising by 2315 points ending at 48,085 points.

But the yen is very much moving in the other direction – it dropped nearly two percent against the US dollar at 150.3¥/$.

Takaichi, set to be the first woman to lead Japan in the coming weeks, has long admired of the former UK leader. Yet even though she holds conservative views regarding social issues, Takaichi follows a contrasting path on budget matters, and promotes a revival of government spending and loose monetary policy.

As such, analysts anticipate to continue the national effort to spur activity though fiscal spending and lower interest rates, likely resulting in higher inflation and increased borrowing.

Thus yen depreciation, as investors anticipate less monetary tightening in Tokyo than before.

The nation’s debt securities are also down today, lifting the interest rate on thirty-year bonds close to all-time highs, because of predictions of more government loans and lasting price increases.

Investors are assessing how closely Sanae Takaichi’s plans will resemble the Abenomics strategy advocated by former PM Shinzo Abe.

A market expert explained:

Different from previous comments, she has not engaged from talking up the three-arrow strategy during the party election, but many are aware her fundamental position and her approval of Shinzo Abe’s three-arrow strategy.

Traders may therefore move to obtain clarity regarding her stance, plus the degree of influence she may be in shaping the central bank’s decisions, ahead of the BoJ’s next meeting is seen as a potential turning point with a quarter-point increase considered likely...

Market Agenda

• 08:30 British Summer Time: Euro area building activity for the previous month
• 9:30 AM UK time: UK building sector data for September
• 6.30pm BST: Central bank head Andrew Bailey to deliver address at Scotland’s Global Investment Summit 2025