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Financial Market Response following the Japanese Ruling Party Vote

Currency strategists at leading financial institutions have terminated their positions to hold an optimistic view on Japan’s currency following Japan’s governing party elected Takaichi to be its head.

In commentary named “Getting out of the yen,” one chief of FX research stated:

We went long JPY as part of our strategy but are now getting out after the party leadership vote. Takaichi’s unforeseen success reintroduces significant doubt concerning Japanese economic goals and the timing of the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflationary pressures exist within the Japanese economy, but questions are mounting on how it will be dealt with.

The analyst also warned indicators of government influence across Japan (where state authorities influence the BoJ’s moves) pose a potential danger.

Gold Approaches the $4,000/oz Level

Gold prices are achieving unprecedented levels, once more, during its best performance since 1979.

The immediate value of the precious metal has climbed by over 1% today to $3,944 per ounce, as it closes in on the $4000/oz mark.

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

The metal has risen this year because of various drivers, among them growing worries that national debt levels are unsustainable.

Sanae Takaichi’s victory in Japan has further strengthened apprehensions that politicians may try to stimulate the economy through higher borrowing and lower interest rates, and depend on rising prices to reduce the real value of new borrowings.

Market Overview

The Japanese equity market has surged to unprecedented levels today, with the currency dropping, following the chief role of the LDP was surprisingly won by spending advocate Sanae Takaichi.

Predictions that the new leader is likely to be a PM favoring economic stimulus has triggered a surge of optimistic trading driving the Nikkei 225 share index to a 5% gain, rising by over 2300 points to finish at 48,085.

But the yen is very much moving in the other direction – it’s down nearly two percent against the US dollar reaching 150.3 against the greenback.

Sanae Takaichi, set to be Japan’s first female prime minister in the coming weeks, is a known fan of Margaret Thatcher. Yet even though she holds conservative views regarding social issues, Takaichi adopts a different strategy on budget matters, and supports higher state investment and accommodative central bank measures.

Therefore, analysts anticipate to continue the country’s drive to stimulate its economy via government outlays and lower interest rates, likely resulting in higher inflation and increased borrowing.

Thus the weaker yen, as markets predict fewer interest rates hikes from the Bank of Japan relative to previous forecasts.

Japanese long-term bond prices have declined today, lifting the yield on thirty-year bonds approaching all-time highs, on expectations of increased debt issuance and more persistent inflation.

The markets will be calculating how closely the new leader’s proposals will resemble the policies of Shinzo Abe advocated by ex-prime minister Shinzo Abe.

A brokerage head commented:

Unlike in late 2024, the leader has avoided from promoting the three-arrow strategy in the recent vote, but most know her fundamental position and her support of the former PM’s Three Arrows philosophy.

Traders may therefore move for more information on her policies, plus the degree of influence she may be in forming the BoJ’s policy thinking, ahead of the BoJ’s next meeting is seen as a potential turning point and a rate rise seen as a real possibility...

Economic Calendar

• 8:30 AM UK time: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for September
• 18:30 BST: BOE chief the BOE’s Andrew Bailey to speak at Scotland’s Global Investment Summit 2025