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Financial Market Response to Japan's Leadership Election

Currency strategists from prominent financial institutions have reportedly closed their previous strategies for holding a bullish stance on Japan’s currency after Japan’s leading political group elected Sanae Takaichi to be its chief.

In commentary named “Leaving yen positions,” a lead strategist for currency analysis stated:

Our strategy was bullish on the yen in our FX Blueprint but have now exited following the LDP election outcome. Sanae Takaichi’s surprise victory creates significant doubt around Japanese economic goals as well as the schedule for interest rate increases by the Bank of Japan.

Experts agree that rising prices are an issue for Japan, but questions are mounting regarding how it will be addressed.

The analyst also warned that signs of fiscal dominance across Japan (where state authorities influence the central bank’s actions) represent a downside risk.

Gold Closes In On $4,000 per ounce Threshold

The gold price are reaching new all-time peaks, today, in its strongest year since 1979.

The current price of gold has climbed more than 1 percent in recent trading reaching $3,944/oz, approaching the $4000/oz mark.

This indicates gold’s value has jumped fifty percent since the start of January, on track for its top annual returns since the late 1970s.

Gold has been driven higher this year by several factors, such as increasing fears that national debt levels may be unmanageable.

Sanae Takaichi’s election win in the party vote is likely amplifying concerns that leaders could seek to stimulate the economy by borrowing more and cheaper credit, and depend on rising prices to erode the value of accumulated debt.

Market Overview

Tokyo’s bourse has jumped to a record high in Monday trading, with the currency dropping, following the leadership of the governing party was unexpectedly secured by spending advocate Takaichi.

Expectations that Sanae Takaichi will become a leader supporting government spending has sparked a rush of positive investment lifting the Tokyo stock index higher by five percent, as it gained more than 2300 points ending at just over 48,000.

Yet the Japanese yen is heading downward – it has fallen about 2 percent relative to the USD reaching 150.3 against the greenback.

The incoming leader, who should become the nation’s initial woman PM later this month, is a known fan of Thatcher. Yet even though she holds conservative views in social matters, she takes an un-Thatcherite approach on budget matters, and supports a revival of government spending and easy money policies.

As such, she’s expected to persist with Japan’s push to boost economic growth via government outlays and lower interest rates, which would lead to increased price pressures and increased borrowing.

Hence the falling currency, as markets predict reduced rate increases by Japanese authorities compared to earlier expectations.

The nation’s debt securities have also fallen this session, pushing up the interest rate on long-term Japanese bonds near to peak levels, because of predictions of increased debt issuance and sustained inflationary pressures.

Investors are evaluating how closely Sanae Takaichi’s plans will echo the Abenomics strategy pushed by former PM Abe.

A market expert explained:

Unlike in late 2024, she has not engaged from talking up the three-arrow strategy during the party election, but most know her fundamental position and her approval of Abe’s three-pillar approach.

Traders may therefore move for more information on her policies, plus the degree of influence she might become in shaping the BoJ’s policy thinking, given the October BoJ meeting is viewed as a “live” affair and a rate rise potentially on the table...

Economic Calendar

• 08:30 British Summer Time: Eurozone construction PMI for last month
• 9:30 AM UK time: UK construction PMI for September
• 6.30pm BST: BOE chief Bailey to deliver address at an investment conference 2025