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Financial Market Response to Japan's Political Shift

Currency strategists at major financial institutions have reportedly closed their strategies to hold a long position on Japan’s currency following the country’s leading political group elected Sanae Takaichi as its chief.

In a report named “Leaving yen positions,” one global head for currency analysis commented:

Our strategy was bullish on the yen as part of our strategy but have closed this after the LDP election outcome. The unexpected win by Takaichi reintroduces significant doubt concerning Japanese economic goals and the timing of interest rate increases by the Bank of Japan.

There is agreement that rising prices are an issue in Japan, but questions are mounting about the approach to managing it.

The strategist additionally noted that signs of fiscal dominance across Japan (in which politicians direct the central bank’s actions) represent a downside risk.

Gold Closes In On $4,000 per ounce Threshold

The gold price are reaching fresh record highs, again, in its top-performing period in over four decades.

The immediate value of gold has climbed more than 1 percent in recent trading to $3,944 per ounce, nearing the $4,000 per ounce level.

This shows the gold price has surged fifty percent since the start of January, on track for its best annual gains in over 45 years.

Gold has been driven higher throughout the year because of various drivers, including rising concerns that government debts may be unmanageable.

Takaichi’s victory in the party vote has further strengthened worries that politicians may try to boost output through higher borrowing and lower interest rates, and use inflation to reduce the real value of the resulting debt.

Financial Summary

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

Forecasts that Sanae Takaichi will become a PM favoring economic stimulus has ignited a surge of optimistic trading driving Japan’s benchmark index higher by five percent, rising by 2315 points ending at just over 48,000.

But the yen is very much moving the opposite way – it has fallen almost 2% relative to the USD reaching 150.3 against the greenback.

Sanae Takaichi, set to be the nation’s initial woman PM later this month, is a known fan of the former UK leader. However, while she is conservative on social policy, the new leader adopts a different strategy in economic policy, and promotes a revival of government spending and easy money policies.

Therefore, she’s expected to persist with the national effort to spur activity via government outlays and cheap credit, potentially causing increased price pressures and increased borrowing.

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

Japanese long-term bond prices have also fallen this session, lifting the interest rate on long-term Japanese bonds close to all-time highs, because of predictions of increased debt issuance and lasting price increases.

Investors will be calculating to what extent Takaichi’s proposals will mirror the “Abenomics” programme implemented by former PM Abe.

A brokerage head commented:

Different from previous comments, she has not engaged from talking up the three-arrow strategy in this LDP leadership campaign, but many are aware her underlying stance and her approval of the former PM’s Three Arrows strategy.

Traders may therefore move for more information on that position, and how much impact she may be in shaping the BoJ’s policy thinking, with the Bank of Japan’s October session is viewed as a potential turning point with a quarter-point increase considered likely...

Market Agenda

• 8:30 AM UK time: European construction data for September
• 9.30am BST: British construction figures for September
• 18:30 BST: Bank of England governor Andrew Bailey to speak at an investment conference 2025