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Investor Sentiment to Japan's Ruling Party Vote

Currency strategists from leading banks have reportedly terminated their previous positions for holding a bullish stance regarding the Japanese yen after Japan’s leading political group chose Takaichi as the new head.

In a note named “Leaving yen positions,” one chief for currency analysis stated:

We went long JPY as part of our strategy but have closed this after the party leadership vote. The unexpected win by Takaichi brings back too much uncertainty concerning Japanese economic goals and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that rising prices are an issue for Japan, but uncertainty is now going up again regarding how it will be addressed.

The analyst additionally noted that signs of fiscal dominance across Japan (where the government controls the BoJ’s moves) represent a downside risk.

Gold Closes In On $4,000 per ounce Level

Gold prices are reaching fresh record highs, again, in its top-performing period in over four decades.

The spot price of bullion has jumped by 1% or more in recent trading reaching $3,944/oz, nearing the $4,000 threshold.

This indicates bullion prices has jumped fifty percent since the start of January, heading for its top annual returns in over 45 years.

Gold has been driven higher throughout the year because of various drivers, including rising concerns that national debt levels cannot be maintained.

Sanae Takaichi’s victory in the party vote has further strengthened concerns that government officials will attempt to boost output via increased debt and lower interest rates, and use inflation to reduce the real value of the resulting debt.

Market Overview

The Japanese equity market has jumped to a record high this morning, while the yen is plunging, following the leadership of the governing party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Expectations that the new leader will become a pro-stimulus prime minister has triggered a wave of enthusiastic buying lifting Japan’s benchmark index up by 5%, adding more than 2300 points ending at just over 48,000.

But the yen is trending in the other direction – it’s down about 2 percent versus the dollar at 150.3¥/$.

Sanae Takaichi, set to be the first woman to lead Japan later this month, is a known fan of Thatcher. But although she is conservative regarding social issues, she takes an un-Thatcherite approach in economic policy, and supports higher state investment and accommodative central bank measures.

As such, analysts anticipate to persist with the country’s drive to boost economic growth via government outlays and reduced borrowing costs, potentially causing rising inflation and more debt.

Thus the weaker yen, as investors anticipate reduced rate increases by Japanese authorities than before.

Japanese long-term bond prices are also down today, driving higher the return on long-term Japanese bonds close to all-time highs, due to forecasts of higher borrowing and more persistent inflation.

The markets will be calculating to what extent Sanae Takaichi’s proposals will mirror the policies of Shinzo Abe advocated by previous leader Shinzo Abe.

A brokerage head explained:

Unlike in late 2024, Takaichi has refrained from talking up Abenomics during the party election, but most know her underlying stance and her appreciation of Abe’s three-arrow philosophy.

Traders may therefore move for more information regarding her stance, and how much impact she could be in directing the BoJ’s policy thinking, given the October BoJ meeting is viewed as a “live” affair with a quarter-point increase potentially on the table...

Today’s Schedule

• 08:30 British Summer Time: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for September
• 6:30 PM UK time: BOE chief Bailey to speak at Scotland’s Global Investment Summit 2025