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Investor Sentiment following Japan's Ruling Party Vote

FX analysts at prominent investment firms have exited their previous positions to hold a bullish stance on the yen following Japan’s leading political group elected Sanae Takaichi as its head.

In commentary called “Leaving yen positions,” one lead strategist for currency analysis explained:

Our strategy was bullish on the yen as part of our strategy but have now exited due to the party leadership vote. Takaichi’s unforeseen success creates renewed unpredictability regarding Japanese economic goals and the expected date of the BoJ [Bank of Japan] hiking cycle.

There is agreement that inflationary pressures exist in Japan, but doubts are resurfacing about the approach to managing it.

The analyst additionally noted evidence of political control in Japan (in which politicians direct the BoJ’s moves) pose a potential danger.

Gold Closes In On the $4,000 Level

The gold price are achieving unprecedented levels, again, in its top-performing period since the late 1970s.

The immediate value of gold has surged more than 1 percent in recent trading reaching $3,944/oz, approaching the $4,000 threshold.

This shows bullion prices has increased fifty percent since the start of January, on track for its strongest yearly performance since the Iranian Revolution.

Gold has been driven higher this year by several factors, such as rising concerns that public borrowing may be unmanageable.

The new leader’s election win in the Japanese election has further strengthened apprehensions that politicians will attempt to stimulate the economy through higher borrowing and cheaper credit, and depend on rising prices to diminish the worth of new borrowings.

Financial Summary

Tokyo’s bourse has surged to a record high in Monday trading, while the yen is plunging, following the top position of the LDP was surprisingly won by spending advocate Sanae Takaichi.

Forecasts that Takaichi will become a pro-stimulus prime minister has ignited a wave of enthusiastic buying that has pushed the Tokyo stock index to a 5% gain, as it gained 2315 points to finish at 48,085 points.

Yet the Japanese yen is very much moving in the other direction – it’s down almost 2% against the US dollar to 150.3 yen per dollar.

The incoming leader, set to be the nation’s initial woman PM in the coming weeks, is a long-time admirer of Margaret Thatcher. However, while she is conservative in social matters, Takaichi follows a contrasting path on budget matters, and promotes a revival of government spending and loose monetary policy.

Therefore, analysts anticipate to continue the national effort to stimulate its economy though fiscal spending and reduced borrowing costs, likely resulting in higher inflation and greater borrowing.

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

Japanese long-term bond prices have declined today, pushing up the interest rate on long-term Japanese bonds near to record highs, because of predictions of more government loans and more persistent inflation.

Traders will be calculating how closely Sanae Takaichi’s proposals will resemble the Abenomics strategy pushed by former PM Shinzo Abe.

A market expert noted:

Unlike in late 2024, Takaichi has refrained from talking up Abenomics in this LDP leadership campaign, but experts understand her core beliefs and her support of Shinzo Abe’s three-arrow philosophy.

Traders may therefore move for more information on that position, and how much impact she could be in directing monetary policy, with the Bank of Japan’s October session is viewed as a “live” affair and a rate rise seen as a real possibility...

Market Agenda

• 8.30am BST: European construction data for September
• 09:30 BST: British construction figures for September
• 6:30 PM UK time: BOE chief Bailey to give keynote speech at Scotland’s Global Investment Summit 2025