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Financial Market Response following the Japanese Leadership Election

Foreign exchange experts at prominent investment firms have reportedly exited their previous recommendations for holding a long position on Japan’s currency after the country’s leading political group elected Sanae Takaichi to be its head.

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

Our strategy was bullish on the yen within our portfolio but have now exited due to the weekend’s election result. Sanae Takaichi’s surprise victory creates renewed unpredictability regarding Japanese economic goals as well as the schedule for interest rate increases by the Bank of Japan.

Analysts concur that rising prices are an issue within the Japanese economy, but doubts are resurfacing regarding how it will be addressed.

The expert further cautioned that signs of fiscal dominance in Japan (where the government controls the central bank’s actions) are a tail risk.

Gold Nears the $4,000 Mark

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

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

This means the gold price has surged by 50% from the beginning of the year, likely to achieve its top annual returns since the late 1970s.

The metal has risen this year by several factors, including growing worries that government debts may be unmanageable.

Sanae Takaichi’s success in Japan is likely amplifying concerns that politicians may try to boost output by borrowing more and reduced rates, and rely on inflation to diminish the worth of the resulting debt.

Financial Summary

Tokyo’s bourse has surged to unprecedented levels in Monday trading, as the yen falls, after the top position of the LDP was unexpectedly secured by fiscal dove Sanae Takaichi.

Expectations that Takaichi is likely to be a PM favoring economic stimulus has ignited a rush of positive investment driving the Nikkei 225 share index higher by five percent, rising by more than 2300 points to close at 48,085 points.

Yet the Japanese yen is trending downward – it’s down nearly two percent relative to the USD reaching 150.3 against the greenback.

Takaichi, who should become the first woman to lead Japan in the coming weeks, has long admired of the former UK leader. Yet even though her social policies are right-leaning on social policy, she adopts a different strategy in economic policy, and has advocate higher state investment and accommodative central bank measures.

As such, markets predict to continue the national effort to boost economic growth via government outlays and cheap credit, which would lead to higher inflation and greater borrowing.

Thus the falling currency, as investors anticipate less monetary tightening from the Bank of Japan than before.

Japan’s government bond values have also fallen in Monday trading, pushing up the interest rate on thirty-year bonds near to all-time highs, because of predictions of higher borrowing and more persistent inflation.

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

A market expert noted:

Unlike in late 2024, she has not engaged from promoting the three-arrow strategy in this LDP leadership campaign, but experts understand her core beliefs and her appreciation of the former PM’s three-arrow philosophy.

Markets could then push to obtain clarity regarding her stance, plus the degree of influence she might become in directing the central bank’s decisions, given the October BoJ meeting is viewed as a “live” affair and a rate rise potentially on the table...

Economic Calendar

• 8.30am BST: Eurozone construction PMI for last month
• 09:30 BST: British construction figures for the last month
• 6:30 PM UK time: Bank of England governor Bailey to give keynote speech at an investment conference 2025