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Market Reactions following the Japanese Ruling Party Vote

Foreign exchange experts from leading investment firms have reportedly terminated their recommendations to hold a bullish stance regarding Japan’s currency following Japan’s ruling party elected Takaichi to be its chief.

In a note called “Getting out of the yen,” a chief for currency analysis commented:

We went long JPY in our FX Blueprint but have now exited due to the weekend’s election result. Takaichi’s unforeseen success reintroduces renewed unpredictability concerning the nation’s policy focus as well as the schedule for BoJ monetary tightening.

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

The strategist additionally noted that signs of fiscal dominance in Japan (where the government controls the central bank’s actions) represent a downside risk.

Gold Closes In On $4,000 per ounce Mark

Bullion values are reaching new all-time peaks, today, in its top-performing period since the late 1970s.

The immediate value of the precious metal has surged by over 1% in recent trading reaching $3,944/oz, approaching the $4000/oz mark.

This means the gold price has jumped half again since the start of January, likely to achieve its best annual gains since the Iranian Revolution.

Gold has been driven higher in recent months because of various drivers, such as increasing fears that national debt levels may be unmanageable.

Sanae Takaichi’s victory in the party vote has further strengthened worries that politicians may try to boost output by borrowing more and lower interest rates, and use inflation to diminish the worth of accumulated debt.

Financial Summary

Tokyo’s bourse has rallied to an all-time peak today, while the yen is plunging, following the top position of the governing party went unexpectedly to by fiscal dove Sanae Takaichi.

Predictions that Sanae Takaichi will be a pro-stimulus prime minister has ignited a surge of optimistic trading that has pushed Japan’s benchmark index to a 5% gain, as it gained more than 2300 points to close at 48,085 points.

But the yen is heading downward – it dropped about 2 percent versus the dollar at 150.3¥/$.

The incoming leader, who is expected to become the nation’s initial woman PM later this month, is a known fan of the former UK leader. Yet even though her social policies are right-leaning regarding social issues, she adopts a different strategy on budget matters, and has advocate higher state investment and loose monetary policy.

Therefore, she’s expected to continue the country’s drive to boost economic growth via government outlays 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 compared to earlier expectations.

Japan’s government bond values have also fallen in Monday trading, lifting the yield on long-term Japanese bonds approaching record highs, on expectations of increased debt issuance and lasting price increases.

The markets are evaluating how closely Takaichi’s policies will echo the “Abenomics” programme implemented by ex-prime minister Shinzo Abe.

A brokerage head noted:

Different from previous comments, the leader has avoided from talking up the three-arrow strategy during the party election, but experts understand her fundamental position and her appreciation of Abe’s Three Arrows approach.

Markets could then push to obtain clarity regarding her stance, plus the degree of influence she may be in directing monetary policy, with the Bank of Japan’s October session is viewed as a key event with a quarter-point increase potentially on the table...

Market Agenda

• 8:30 AM UK time: Eurozone construction PMI for last month
• 9:30 AM UK time: UK building sector data for September
• 6.30pm BST: Central bank head Andrew Bailey to give keynote speech at a financial forum 2025