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Investor Sentiment to the Japanese Political Shift

Currency strategists from leading banks have reportedly terminated their previous strategies for holding a long position on the Japanese yen following Japan’s ruling party chose Sanae Takaichi to be its head.

In a note titled “Exiting the yen,” a lead strategist of FX research commented:

We held a long yen position within our portfolio but have now exited following the weekend’s election result. Takaichi’s unforeseen success brings back too much uncertainty around the nation’s policy focus and the timing of BoJ monetary tightening.

Experts agree that inflation is a problem for Japan, but doubts are resurfacing on how it will be dealt with.

The expert further cautioned indicators of government influence within Japan (where state authorities influence monetary policy decisions) represent a downside risk.

Gold Closes In On the $4,000 Level

The gold price are hitting fresh record highs, once more, during its best performance in over four decades.

The immediate value of bullion has climbed by 1% or more today to $3,944 per ounce, approaching the $4,000 per ounce level.

This means bullion prices has increased by 50% since January 1st, heading for its strongest yearly performance since the Iranian Revolution.

Gold has been driven higher throughout the year because of various drivers, such as rising concerns that government debts may be unmanageable.

Takaichi’s victory in the Japanese election has further strengthened worries that politicians will attempt to secure growth via increased debt and lower interest rates, and use inflation to diminish the worth of the resulting debt.

Market Overview

Japan’s stock market has surged to an all-time peak today, while the yen is plunging, after the top position of the LDP went unexpectedly to by spending advocate Sanae Takaichi.

Expectations that the new leader is likely to be a PM favoring economic stimulus has sparked a rush of positive investment lifting the Tokyo stock index to a 5% gain, adding more than 2300 points ending at 48,085 points.

However, the currency is trending in the other direction – it dropped almost 2% against the US dollar reaching 150.3 against the greenback.

The incoming leader, who is expected to become Japan’s first female prime minister soon, is a known fan of Margaret Thatcher. Yet even though she is conservative regarding social issues, she adopts a different strategy in economic policy, and has advocate increased public expenditure and accommodative central bank measures.

Therefore, markets predict to persist with Japan’s push to boost economic growth though fiscal spending and lower interest rates, potentially causing rising inflation and increased borrowing.

Hence yen depreciation, with traders expecting reduced rate increases in Tokyo than before.

The nation’s debt securities have declined this session, pushing up the return on thirty-year bonds approaching record highs, on expectations of increased debt issuance and sustained inflationary pressures.

Traders will be calculating how closely Sanae Takaichi’s plans will echo the “Abenomics” programme pushed by former PM Abe.

One analyst commented:

Unlike in late 2024, she has not engaged from talking up the three-arrow strategy in the recent vote, but many are aware her core beliefs and her appreciation of Abe’s three-pillar strategy.

Investors might thus seek to obtain clarity regarding her stance, and how much impact she may be in forming the central bank’s decisions, ahead of the BoJ’s next meeting is viewed as a potential turning point and a rate rise potentially on the table...

Market Agenda

• 8.30am BST: European construction data for September
• 09:30 BST: UK building sector data for September
• 6.30pm BST: Central bank head Andrew Bailey to speak at Scotland’s Global Investment Summit 2025