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Financial Market Response to Japan's Ruling Party Vote

Currency strategists at prominent investment firms have reportedly closed their positions for holding a bullish stance on the Japanese yen following Japan’s governing party chose Sanae Takaichi to be its head.

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

We went long JPY in our FX Blueprint but have closed this due to the party leadership vote. Sanae Takaichi’s surprise victory creates too much uncertainty around Japanese economic goals and the expected date of BoJ monetary tightening.

There is agreement that inflationary pressures exist for Japan, but questions are mounting on how it will be dealt with.

The expert additionally noted indicators of government influence in Japan (where state authorities influence the BoJ’s moves) represent a downside risk.

Gold Nears the $4,000/oz Threshold

Bullion values are achieving new all-time peaks, again, during its best performance since 1979.

The immediate value of gold has climbed by over 1% today reaching $3,944/oz, as it closes in on the $4,000 per ounce level.

This indicates gold’s value has surged half again since January 1st, likely to achieve its top annual returns since the Iranian Revolution.

Gold has been driven higher throughout the year by several factors, including increasing fears that public borrowing may be unmanageable.

Sanae Takaichi’s election win in the Japanese election is likely amplifying apprehensions that leaders may try to secure growth via increased debt and lower interest rates, and rely on inflation to diminish the worth of new borrowings.

Financial Summary

Tokyo’s bourse has surged to a record high this morning, with the currency dropping, following the leadership of the LDP went unexpectedly to by fiscal dove Sanae Takaichi.

Forecasts that Sanae Takaichi will be a pro-stimulus prime minister has triggered a rush of positive investment lifting the Nikkei 225 share index to a 5% gain, as it gained more than 2300 points to finish at 48,085.

Yet the Japanese yen is trending in the other direction – it’s down almost 2% against the US dollar reaching 150.3 against the greenback.

Sanae Takaichi, who should become Japan’s first female prime minister later this month, has long admired of Margaret Thatcher. However, while she holds conservative views regarding social issues, Takaichi takes an un-Thatcherite approach in economic policy, and has advocate higher state investment and accommodative central bank measures.

As such, she’s expected to persist with the country’s drive to spur activity through public investment and lower interest rates, likely resulting in higher inflation and more debt.

Thus the weaker yen, with traders expecting less monetary tightening by Japanese authorities compared to earlier expectations.

Japanese long-term bond prices have declined today, driving higher the interest rate on long-term Japanese bonds approaching peak levels, because of predictions of higher borrowing and more persistent inflation.

The markets will be calculating how closely Sanae Takaichi’s plans will resemble the “Abenomics” programme implemented by former PM Shinzo Abe.

One analyst explained:

Unlike in late 2024, the leader has avoided from highlighting the three-arrow strategy during the party election, but most know her underlying stance and her approval of the former PM’s Three Arrows strategy.

Traders may therefore move to gain understanding on her policies, as well as exactly how influential she might become in shaping the central bank’s decisions, ahead of the BoJ’s next meeting is viewed as a “live” affair and a 25bp hike considered likely...

Market Agenda

• 8.30am BST: Eurozone construction PMI for September
• 9.30am BST: British construction figures for September
• 18:30 BST: Central bank head Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025