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Financial Market Response following the Japanese Leadership Election

Currency strategists from prominent banks have exited their previous positions to hold a long position on the yen following the country’s leading political group selected Sanae Takaichi as the new leader.

In a report named “Leaving yen positions,” a lead strategist for foreign exchange explained:

We held a long yen position as part of our strategy but have now exited following the weekend’s election result. Takaichi’s unforeseen success creates significant doubt regarding the nation’s policy focus and the expected date of BoJ monetary tightening.

Analysts concur that rising prices are an issue within the Japanese economy, but uncertainty is now going up again on how it will be dealt with.

The strategist also warned indicators of government influence in Japan (where the government controls monetary policy decisions) pose a potential danger.

Gold Closes In On $4,000 per ounce Level

Gold prices are achieving fresh record highs, again, in its strongest year in over four decades.

The immediate value of bullion has surged by over 1% this morning to $3,944 per ounce, nearing the $4,000 per ounce level.

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

Bullion has advanced this year due to multiple reasons, such as rising concerns that national debt levels are unsustainable.

The new leader’s success in the party vote is likely amplifying concerns that politicians will attempt to secure growth through higher borrowing and reduced rates, and use inflation to erode the value of accumulated debt.

Market Overview

The Japanese equity market has surged to unprecedented levels today, with the currency dropping, following the top position of the country’s ruling party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that Sanae Takaichi is likely to be a PM favoring economic stimulus has sparked a surge of optimistic trading that has pushed the Tokyo stock index to a 5% gain, as it gained more than 2300 points to close at 48,085 points.

But the yen is very much moving the opposite way – it has fallen about 2 percent versus the dollar to 150.3 yen per dollar.

Takaichi, set to be the nation’s initial woman PM soon, is a known fan of Margaret Thatcher. Yet even though her social policies are right-leaning regarding social issues, the new leader takes an un-Thatcherite approach on budget matters, and promotes a revival of government spending and loose monetary policy.

As such, analysts anticipate to continue Japan’s push to spur activity through public investment and lower interest rates, which would lead to rising inflation and increased borrowing.

As a result the weaker yen, as investors anticipate less monetary tightening from the Bank of Japan relative to previous forecasts.

The nation’s debt securities are also down this session, lifting the yield on its 30-year debt near to peak levels, due to forecasts of more government loans and sustained inflationary pressures.

Investors will be calculating the degree to which Takaichi’s policies will echo the “Abenomics” programme implemented by former PM Abe.

A market expert explained:

In contrast to last year, Takaichi has refrained from highlighting Abenomics in this LDP leadership campaign, but experts understand her fundamental position and her appreciation of the former PM’s three-arrow approach.

Markets could then push for more information on her policies, as well as exactly how influential she may be in forming the central bank’s decisions, given the October BoJ meeting is seen as a potential turning point and a 25bp hike seen as a real possibility...

Economic Calendar

• 8.30am BST: Euro area building activity for the previous month
• 9.30am BST: British construction figures for September
• 6.30pm BST: Bank of England governor the BOE’s Andrew Bailey to deliver address at an investment conference 2025