🔗 Share this article

Financial Market Response following the Japanese Ruling Party Vote

Foreign exchange experts at prominent financial institutions have closed their previous strategies to hold a long position regarding Japan’s currency following Japan’s governing party chose Sanae Takaichi as the new head.

In a report called “Getting out of the yen,” a global head for currency analysis commented:

We held a long yen position in our FX Blueprint but have closed this due to the LDP election outcome. The unexpected win by Takaichi creates significant doubt around Japan’s policy priorities and the timing of BoJ monetary tightening.

Analysts concur that rising prices are an issue in Japan, but doubts are resurfacing about the approach to managing it.

The strategist additionally noted evidence of political control in Japan (where state authorities influence monetary policy decisions) are a tail risk.

Gold Nears $4,000 per ounce Level

The gold price are reaching new all-time peaks, again, during its best performance since the late 1970s.

The immediate value of the precious metal has jumped by 1% or more this morning reaching $3,944/oz, nearing the $4,000 per ounce level.

This indicates bullion prices has increased fifty percent from the beginning of the year, heading for its strongest yearly performance since the Iranian Revolution.

Bullion has advanced throughout the year because of various drivers, such as increasing fears that national debt levels cannot be maintained.

Takaichi’s victory in Japan is likely amplifying concerns that leaders will attempt to stimulate the economy via increased debt and lower interest rates, and rely on inflation to reduce the real value of the resulting debt.

Financial Summary

Japan’s stock market has jumped to unprecedented levels today, with the currency dropping, following the chief role of the LDP was surprisingly won by fiscal dove Sanae Takaichi.

Expectations that the new leader will become a leader supporting government spending has sparked a surge of optimistic trading lifting the Nikkei 225 share index to a 5% gain, adding over 2300 points ending at 48,085 points.

But the yen is trending the opposite way – it has fallen about 2 percent against the US dollar reaching 150.3 against the greenback.

Takaichi, set to be Japan’s first female prime minister later this month, is a long-time admirer of Margaret Thatcher. But although her social policies are right-leaning in social matters, the new leader takes an un-Thatcherite approach in economic policy, and has advocate higher state investment and easy money policies.

Therefore, she’s expected to persist with Japan’s push to spur activity via government outlays and lower interest rates, which would lead to higher inflation and greater borrowing.

Thus the falling currency, with traders expecting reduced rate increases from the Bank of Japan than before.

The nation’s debt securities are also down this session, pushing up the yield on long-term Japanese bonds close to peak levels, due to forecasts of higher borrowing and lasting price increases.

The markets are evaluating how closely Takaichi’s policies will echo the policies of Shinzo Abe advocated by ex-prime minister Shinzo Abe.

A brokerage head noted:

Different from previous comments, the leader has avoided from talking up Abenomics in the recent vote, but many are aware her core beliefs and her appreciation of Abe’s three-arrow philosophy.

Investors might thus seek to gain understanding on her policies, plus the degree of influence she could be in shaping the central bank’s decisions, with the Bank of Japan’s October session is considered a “live” affair with a quarter-point increase considered likely...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for last month
• 9:30 AM UK time: British construction figures for the last month
• 6:30 PM UK time: Central bank head Bailey to deliver address at an investment conference 2025