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Financial Market Response to the Japanese Ruling Party Vote

Foreign exchange experts at prominent banks have reportedly closed their previous positions for holding a bullish stance regarding Japan’s currency after Japan’s leading political group chose Sanae Takaichi as the new leader.

In a report titled “Getting out of the yen,” one chief of FX research explained:

We held a long yen position in our FX Blueprint but are now getting out due to the party leadership vote. Takaichi’s unforeseen success reintroduces renewed unpredictability regarding Japan’s policy priorities and the timing of BoJ monetary tightening.

Experts agree that inflation is a problem within the Japanese economy, but uncertainty is now going up again regarding how it will be addressed.

The expert further cautioned evidence of political control within Japan (where state authorities influence the BoJ’s moves) represent a downside risk.

Gold Approaches $4,000 per ounce Mark

The gold price are achieving unprecedented levels, again, during its best performance in over four decades.

The current price of bullion has jumped more than 1 percent today reaching $3,944/oz, nearing the $4000/oz mark.

This means gold’s value has surged by 50% from the beginning of the year, heading for its strongest yearly performance since the Iranian Revolution.

Bullion has advanced in recent months due to multiple reasons, including growing worries that public borrowing are unsustainable.

Takaichi’s success in the Japanese election has further strengthened worries that politicians will attempt to boost output by borrowing more and lower interest rates, and depend on rising prices to diminish the worth of accumulated debt.

Financial Summary

Tokyo’s bourse has rallied to unprecedented levels in Monday trading, as the yen falls, following the leadership of the country’s ruling party was unexpectedly secured by spending advocate Takaichi.

Forecasts that Takaichi will become a pro-stimulus prime minister has ignited a surge of optimistic trading that has pushed the Nikkei 225 share index to a 5% gain, adding more than 2300 points to close at 48,085.

However, the currency is heading the opposite way – it has fallen almost 2% versus the dollar reaching 150.3 against the greenback.

Takaichi, set to be Japan’s first female prime minister later this month, is a known fan of Margaret Thatcher. However, while she is conservative in social matters, she follows a contrasting path on budget matters, and supports higher state investment and easy money policies.

Consequently, she’s expected to persist with the national effort to stimulate its economy though fiscal spending and lower interest rates, potentially causing higher inflation and more debt.

Thus yen depreciation, as investors anticipate reduced rate increases by Japanese authorities compared to earlier expectations.

Japanese long-term bond prices have declined today, lifting the interest rate on thirty-year bonds near to record highs, on expectations of increased debt issuance and sustained inflationary pressures.

Traders are evaluating how closely Takaichi’s plans will mirror the Abenomics strategy pushed by ex-prime minister Abe.

One analyst noted:

Unlike in late 2024, Takaichi has refrained from talking up the three-arrow strategy in the recent vote, but experts understand her core beliefs and her support of the former PM’s three-arrow strategy.

Investors might thus seek to obtain clarity on that position, plus the degree of influence she could be in shaping the BoJ’s policy thinking, with the Bank of Japan’s October session is viewed as a potential turning point and a rate rise seen as a real possibility...

Market Agenda

• 8:30 AM UK time: European construction data for last month
• 09:30 BST: UK construction PMI for September
• 6:30 PM UK time: Central bank head the BOE’s Andrew Bailey to speak at an investment conference 2025