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Market Reactions to the Japanese Ruling Party Vote

Foreign exchange experts at leading investment firms have reportedly exited their positions to hold a bullish stance regarding Japan’s currency after Japan’s governing party selected Sanae Takaichi as its leader.

In a report titled “Getting out of the yen,” a chief of FX research stated:

Our strategy was bullish on the yen as part of our strategy but are now getting out after the weekend’s election result. The unexpected win by Takaichi reintroduces significant doubt regarding Japanese economic goals as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

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 in Japan (in which politicians direct monetary policy decisions) pose a potential danger.

Gold Closes In On the $4,000 Level

Gold prices are achieving new all-time peaks, today, in its top-performing period since 1979.

The spot price of gold has jumped by over 1% in recent trading at $3,944 an ounce, nearing the $4000/oz mark.

This indicates the gold price has surged by 50% since the start of January, likely to achieve its best annual gains in over 45 years.

Bullion has advanced this year because of various drivers, including rising concerns that national debt levels cannot be maintained.

Sanae Takaichi’s election win in Japan will only have reinforced apprehensions that government officials may try to secure growth through higher borrowing and reduced rates, and depend on rising prices to reduce the real value of the resulting debt.

Financial Summary

The Japanese equity market has surged to unprecedented levels this morning, as the yen falls, after the chief role of the country’s ruling party went unexpectedly to by spending advocate Takaichi.

Predictions that the new leader is likely to be a PM favoring economic stimulus has sparked a wave of enthusiastic buying lifting the Tokyo stock index up by 5%, as it gained more than 2300 points to close at 48,085 points.

However, the currency is heading downward – it has fallen almost 2% relative to the USD to 150.3 yen per dollar.

Takaichi, set to be the first woman to lead Japan later this month, has long admired of Margaret Thatcher. Yet even though her social policies are right-leaning regarding social issues, she takes an un-Thatcherite approach on budget matters, and supports higher state investment and loose monetary policy.

As such, she’s expected to persist with Japan’s push to boost economic growth though fiscal spending and cheap credit, likely resulting in higher inflation and greater borrowing.

As a result the weaker yen, with traders expecting reduced rate increases in Tokyo relative to previous forecasts.

The nation’s debt securities have also fallen in Monday trading, lifting the return on its 30-year debt close to peak levels, due to forecasts of increased debt issuance and sustained inflationary pressures.

Investors will be calculating the degree to which Takaichi’s plans will mirror the policies of Shinzo Abe implemented by previous leader Shinzo Abe.

A market expert commented:

Different from previous comments, the leader has avoided from promoting the Abenomics program in the recent vote, but most know her core beliefs and her appreciation of Abe’s three-arrow approach.

Markets could then push to gain understanding regarding her stance, as well as exactly how influential she might become in forming the central bank’s decisions, given the October BoJ meeting is considered a key event and a rate rise seen as a real possibility...

Market Agenda

• 8:30 AM UK time: European construction data for September
• 09:30 BST: British construction figures for September
• 6.30pm BST: Central bank head Andrew Bailey to give keynote speech at a financial forum 2025