🔗 Share this article

Investor Sentiment following the Japanese Ruling Party Vote

Foreign exchange experts from prominent financial institutions have reportedly terminated their previous strategies for holding an optimistic view on the Japanese yen following the country’s leading political group chose Takaichi to be its chief.

In commentary titled “Getting out of the yen,” one chief for foreign exchange stated:

We went long JPY in our FX Blueprint but have now exited following the LDP election outcome. Sanae Takaichi’s surprise victory brings back too much uncertainty regarding Japanese economic goals and the timing of BoJ monetary tightening.

There is agreement that inflationary pressures exist within the Japanese economy, but questions are mounting regarding how it will be addressed.

The strategist additionally noted indicators of government influence across Japan (where state authorities influence monetary policy decisions) pose a potential danger.

Gold Nears the $4,000 Mark

Bullion values are hitting fresh record highs, once more, in its top-performing period in over four decades.

The spot price of bullion has jumped more than 1 percent in recent trading reaching $3,944/oz, approaching the $4000/oz mark.

This shows bullion prices has surged by 50% since January 1st, likely to achieve its top annual returns since the late 1970s.

Gold has been driven higher throughout the year because of various drivers, including rising concerns that national debt levels are unsustainable.

The new leader’s success in Japan has further strengthened worries that government officials will attempt to boost output by borrowing more and cheaper credit, and use inflation to diminish the worth of accumulated debt.

Trading Update

The Japanese equity market has rallied to an all-time peak today, with the currency dropping, after the top position of the governing party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that the new leader is likely to be a pro-stimulus prime minister has sparked a rush of positive investment that has pushed the Nikkei 225 share index up by 5%, rising by more than 2300 points to close at 48,085.

Yet the Japanese yen is very much moving the opposite way – it’s down nearly two percent against the US dollar to 150.3 yen per dollar.

Sanae Takaichi, who is expected to become the first woman to lead Japan later this month, is a known fan of the former UK leader. Yet even though she is conservative on social policy, the new leader adopts a different strategy on budget matters, and has advocate increased public expenditure and easy money policies.

Therefore, she’s expected to persist with Japan’s push to spur activity though fiscal spending and lower interest rates, which would lead to higher inflation and more debt.

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

The nation’s debt securities have declined in Monday trading, pushing up the yield on thirty-year bonds close to record highs, on expectations of higher borrowing and lasting price increases.

Investors are assessing the degree to which the new leader’s plans will mirror the Abenomics strategy pushed by ex-prime minister Shinzo Abe.

One analyst noted:

Different from previous comments, the leader has avoided from talking up Abenomics in the recent vote, but experts understand her fundamental position and her appreciation of the former PM’s three-arrow strategy.

Traders may therefore move for more information on that position, as well as exactly how influential 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 considered likely...

Economic Calendar

• 08:30 British Summer Time: Euro area building activity for the previous month
• 9:30 AM UK time: UK building sector data for the last month
• 18:30 BST: Bank of England governor Bailey to give keynote speech at an investment conference 2025