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Investor Sentiment to the Japanese Political Shift

FX analysts at major investment firms have exited their strategies for holding a bullish stance regarding Japan’s currency after the country’s leading political group chose Sanae Takaichi as its head.

In commentary titled “Exiting the yen,” a global head for currency analysis commented:

Our strategy was bullish on the yen as part of our strategy but are now getting out due to the weekend’s election result. Takaichi’s unforeseen success creates significant doubt regarding Japan’s policy priorities as well as the schedule for interest rate increases by the Bank of Japan.

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

The strategist further cautioned evidence of political control within Japan (in which politicians direct the central bank’s actions) are a tail risk.

Gold Nears the $4,000 Level

The gold price are hitting fresh record highs, today, in its strongest year since 1979.

The current price of bullion has surged by over 1% this morning at $3,944 an ounce, approaching the $4,000 threshold.

This indicates bullion prices has surged half again from the beginning of the year, likely to achieve its best annual gains since the late 1970s.

The metal has risen throughout the year by several factors, including rising concerns that public borrowing are unsustainable.

Sanae Takaichi’s victory in the Japanese election is likely amplifying concerns that politicians may try to secure growth via increased debt and cheaper credit, and depend on rising prices to erode the value of accumulated debt.

Financial Summary

Tokyo’s bourse has jumped to an all-time peak today, while the yen is plunging, following the leadership of the country’s ruling party was unexpectedly secured by fiscal dove Sanae Takaichi.

Forecasts that Takaichi will be a pro-stimulus prime minister has sparked a surge of optimistic trading that has pushed the Nikkei 225 share index higher by five percent, rising by 2315 points ending at 48,085 points.

However, the currency is very much moving in the other direction – it’s down almost 2% versus the dollar reaching 150.3 against the greenback.

Takaichi, who should become the first woman to lead Japan in the coming weeks, has long admired of Margaret Thatcher. However, while she is conservative in social matters, the new leader follows a contrasting path to fiscal policy, and supports a revival of government spending and easy money policies.

Consequently, markets predict to maintain the country’s drive to spur activity through public investment and lower interest rates, likely resulting in rising inflation and increased borrowing.

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

The nation’s debt securities are also down today, pushing up the interest rate on thirty-year bonds approaching record highs, due to forecasts of higher borrowing and more persistent inflation.

The markets are evaluating to what extent Sanae Takaichi’s plans will resemble the policies of Shinzo Abe implemented by previous leader Abe.

A market expert explained:

Different from previous comments, the leader has avoided from promoting the three-arrow strategy in this LDP leadership campaign, but many are aware her fundamental position and her approval of Abe’s three-arrow philosophy.

Traders may therefore move to obtain clarity on that position, as well as exactly how influential she may be in directing monetary policy, given the October BoJ meeting is viewed as a key event and a rate rise considered likely...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for last month
• 09:30 BST: UK construction PMI for September
• 18:30 BST: Central bank head Andrew Bailey to speak at an investment conference 2025