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Investor Sentiment to the Japanese Ruling Party Vote

Foreign exchange experts at prominent investment firms have terminated their recommendations to hold a bullish stance regarding the yen following the country’s ruling party chose Takaichi as the new head.

In commentary called “Leaving yen positions,” one chief for currency analysis commented:

We held a long yen position as part of our strategy but are now getting out following the weekend’s election result. Takaichi’s unforeseen success creates significant doubt concerning the nation’s policy focus and the timing of the BoJ [Bank of Japan] hiking cycle.

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

The expert also warned that signs of fiscal dominance in Japan (where state authorities influence monetary policy decisions) are a tail risk.

Gold Closes In On $4,000 per ounce Mark

Bullion values are hitting new all-time peaks, today, in its top-performing period since 1979.

The spot price of gold has jumped more than 1 percent this morning to $3,944 per ounce, as it closes in on the $4000/oz mark.

This means gold’s value has increased half again from the beginning of the year, on track for its top annual returns since the late 1970s.

Gold has been driven higher in recent months because of various drivers, such as increasing fears that national debt levels may be unmanageable.

Takaichi’s success in the Japanese election is likely amplifying worries that politicians may try to boost output through higher borrowing and cheaper credit, and depend on rising prices to reduce the real value of new borrowings.

Trading Update

Japan’s stock market has surged to an all-time peak in Monday trading, while the yen is plunging, following the top position of the country’s ruling party went unexpectedly to by fiscal dove Takaichi.

Predictions that Takaichi is likely to be a leader supporting government spending has ignited a wave of enthusiastic buying lifting the Nikkei 225 share index to a 5% gain, adding over 2300 points to finish at just over 48,000.

However, the currency is heading in the other direction – it has fallen nearly two percent versus the dollar reaching 150.3 against the greenback.

Takaichi, set to be Japan’s first female prime minister in the coming weeks, has long admired of Margaret Thatcher. Yet even though her social policies are right-leaning in social matters, the new leader follows a contrasting path to fiscal policy, and supports increased public expenditure and easy money policies.

As such, markets predict to persist with Japan’s push to spur activity via government outlays and lower interest rates, likely resulting in rising inflation and more debt.

As a result yen depreciation, as markets predict less monetary tightening by Japanese authorities relative to previous forecasts.

The nation’s debt securities have also fallen in Monday trading, driving higher the interest rate on long-term Japanese bonds close to all-time highs, because of predictions of higher borrowing and more persistent inflation.

Investors are evaluating to what extent Sanae Takaichi’s plans will echo the Abenomics strategy implemented by former PM Shinzo Abe.

One analyst noted:

Unlike in late 2024, Takaichi has refrained from talking up Abenomics in the recent vote, but experts understand her fundamental position and her support of the former PM’s three-arrow strategy.

Traders may therefore move for more information regarding her stance, and how much impact she may be in shaping the central bank’s decisions, with the Bank of Japan’s October session is seen as a key event and a rate rise seen as a real possibility...

Today’s Schedule

• 8.30am BST: European construction data for September
• 9.30am BST: UK building sector data for the last month
• 18:30 BST: Central bank head Andrew Bailey to deliver address at an investment conference 2025