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Investor Sentiment to Japan's Political Shift

Foreign exchange experts at major investment firms have reportedly closed their previous strategies for holding a long position on the Japanese yen after the country’s ruling party chose Takaichi as the new head.

In commentary named “Getting out of the yen,” a global head of FX research commented:

Our strategy was bullish on the yen in our FX Blueprint but have closed this due to the party leadership vote. Takaichi’s unforeseen success reintroduces significant doubt concerning Japan’s policy priorities and the timing of the BoJ [Bank of Japan] hiking cycle.

Analysts concur that inflationary pressures exist within the Japanese economy, but doubts are resurfacing regarding how it will be addressed.

The analyst additionally noted indicators of government influence within Japan (where the government controls monetary policy decisions) pose a potential danger.

Gold Nears the $4,000/oz Mark

The gold price are reaching new all-time peaks, once more, during its best performance in over four decades.

The current price of bullion has climbed by over 1% this morning to $3,944 per ounce, as it closes in on the $4,000 per ounce level.

This shows the gold price has increased by 50% since January 1st, likely to achieve its best annual gains since the Iranian Revolution.

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

Takaichi’s victory in the party vote has further strengthened worries that government officials could seek to secure growth via increased debt and lower interest rates, and use inflation to erode the value of the resulting debt.

Market Overview

Tokyo’s bourse has rallied to unprecedented levels in Monday trading, while the yen is plunging, following the leadership of the LDP was surprisingly won by fiscal dove Takaichi.

Predictions that Sanae Takaichi will be a leader supporting government spending has sparked a rush of positive investment that has pushed Japan’s benchmark index up by 5%, as it gained over 2300 points ending at just over 48,000.

Yet the Japanese yen is heading the opposite way – it has fallen almost 2% against the US dollar reaching 150.3 against the greenback.

Takaichi, who is expected to become the first woman to lead Japan later this month, has long admired of Margaret Thatcher. But although her social policies are right-leaning in social matters, Takaichi follows a contrasting path on budget matters, and promotes a revival of government spending and loose monetary policy.

As such, she’s expected to maintain the country’s drive to stimulate its economy via government outlays and reduced borrowing costs, likely resulting in increased price pressures and greater borrowing.

As a result the falling currency, as markets predict fewer interest rates hikes by Japanese authorities than before.

Japanese long-term bond prices have declined in Monday trading, driving higher the yield on thirty-year bonds near to record highs, because of predictions of higher borrowing and more persistent inflation.

Investors are assessing how closely Takaichi’s policies will echo the “Abenomics” programme advocated by ex-prime minister Shinzo Abe.

One analyst commented:

Unlike in late 2024, the leader has avoided from promoting the three-arrow strategy during the party election, but experts understand her underlying stance and her appreciation of Abe’s three-pillar approach.

Markets could then push for more information on her policies, as well as exactly how influential she may be in forming monetary policy, ahead of the BoJ’s next meeting is considered a key event and a 25bp hike considered likely...

Today’s Schedule

• 8.30am BST: Eurozone construction PMI for September
• 9:30 AM UK time: UK building sector data for the last month
• 18:30 BST: Central bank head Andrew Bailey to speak at Scotland’s Global Investment Summit 2025