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Investor Sentiment to the Japanese Leadership Election

FX analysts from major financial institutions have reportedly terminated their previous positions for holding a bullish stance on the Japanese yen following Japan’s ruling party chose Sanae Takaichi to be its head.

In commentary named “Getting out of the yen,” one global head for foreign exchange explained:

Our strategy was bullish on the yen within our portfolio but are now getting out after the party leadership vote. The unexpected win by Takaichi reintroduces renewed unpredictability concerning the nation’s policy focus and the expected date of interest rate increases by the Bank of Japan.

There is agreement that rising prices are an issue in Japan, but doubts are resurfacing on how it will be dealt with.

The strategist also warned that signs of fiscal dominance across Japan (where state authorities influence monetary policy decisions) are a tail risk.

Gold Approaches the $4,000 Level

The gold price are achieving new all-time peaks, once more, in its top-performing period in over four decades.

The spot price of the precious metal has surged more than 1 percent this morning reaching $3,944/oz, nearing the $4000/oz mark.

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

Gold has been driven higher throughout the year because of various drivers, such as rising concerns that public borrowing may be unmanageable.

Sanae Takaichi’s success in the Japanese election will only have reinforced apprehensions that leaders will attempt to stimulate the economy through higher borrowing and reduced rates, and use inflation to diminish the worth of accumulated debt.

Financial Summary

Tokyo’s bourse has jumped to unprecedented levels in Monday trading, with the currency dropping, following the leadership of the country’s ruling party was unexpectedly secured by spending advocate Takaichi.

Expectations that Sanae Takaichi will become a leader supporting government spending has ignited a surge of optimistic trading lifting the Nikkei 225 share index to a 5% gain, as it gained more than 2300 points to finish at just over 48,000.

However, the currency is trending the opposite way – it’s down almost 2% against the US dollar at 150.3¥/$.

The incoming leader, set to be Japan’s first female prime minister in the coming weeks, is a known fan of the former UK leader. Yet even though her social policies are right-leaning in social matters, the new leader takes an un-Thatcherite approach in economic policy, and supports higher state investment and accommodative central bank measures.

Consequently, analysts anticipate to continue the country’s drive to stimulate its economy through public investment and reduced borrowing costs, potentially causing increased price pressures and more debt.

As a result the falling currency, as investors anticipate fewer interest rates hikes from the Bank of Japan compared to earlier expectations.

Japanese long-term bond prices are also down this session, driving higher the yield on long-term Japanese bonds approaching record highs, because of predictions of higher borrowing and lasting price increases.

The markets are assessing the degree to which Sanae Takaichi’s proposals will resemble the Abenomics strategy pushed by ex-prime minister Shinzo Abe.

One analyst explained:

In contrast to last year, Takaichi has refrained from promoting the Abenomics program in the recent vote, but many are aware her core beliefs and her support of Shinzo Abe’s three-pillar strategy.

Investors might thus seek to gain understanding on her policies, plus the degree of influence she might become in directing monetary policy, ahead of the BoJ’s next meeting is considered a key event and a rate rise seen as a real possibility...

Economic Calendar

• 8:30 AM UK time: European construction data for September
• 9.30am BST: UK construction PMI for the last month
• 6.30pm BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at a financial forum 2025