🔗 Share this article

Investor Sentiment following the Japanese Ruling Party Vote

Currency strategists at leading banks have reportedly closed their recommendations for holding an optimistic view on the yen after Japan’s ruling party elected Sanae Takaichi to be its head.

In a report named “Exiting the yen,” a global head of FX research stated:

Our strategy was bullish on the yen as part of our strategy but have now exited following the LDP election outcome. The unexpected win by Takaichi brings back too much uncertainty around Japan’s policy priorities and the timing of interest rate increases by the Bank of Japan.

There is agreement that inflationary pressures exist in Japan, but uncertainty is now going up again on how it will be dealt with.

The strategist also warned evidence of political control across Japan (in which politicians direct monetary policy decisions) represent a downside risk.

Gold Approaches the $4,000 Threshold

The gold price are achieving unprecedented levels, once more, during its best performance since the late 1970s.

The spot price of bullion has jumped by over 1% this morning reaching $3,944/oz, approaching the $4,000 threshold.

This means bullion prices has surged fifty percent since the start of January, likely to achieve its best annual gains since the Iranian Revolution.

Bullion has advanced this year by several factors, among them growing worries that national debt levels cannot be maintained.

Takaichi’s success in Japan is likely amplifying apprehensions that leaders will attempt to secure growth by borrowing more and lower interest rates, and rely on inflation to reduce the real value of accumulated debt.

Financial Summary

Tokyo’s bourse has jumped to a record high this morning, as the yen falls, following the top position of the governing party went unexpectedly to by stimulus supporter Sanae Takaichi.

Expectations that Takaichi will be a pro-stimulus prime minister has ignited a rush of positive investment driving Japan’s benchmark index higher by five percent, adding more than 2300 points to close at 48,085.

However, the currency is very much moving downward – it dropped nearly two percent relative to the USD reaching 150.3 against the greenback.

Takaichi, who should become the first woman to lead Japan soon, has long admired of the former UK leader. Yet even though her social policies are right-leaning in social matters, the new leader takes an un-Thatcherite approach in economic policy, and supports higher state investment and loose monetary policy.

Consequently, she’s expected to persist with the country’s drive to stimulate its economy via government outlays and cheap credit, potentially causing increased price pressures and greater borrowing.

Thus yen depreciation, as investors anticipate fewer interest rates hikes in Tokyo compared to earlier expectations.

The nation’s debt securities are also down this session, pushing up the return on long-term Japanese bonds near to peak levels, on expectations of more government loans and more persistent inflation.

Investors will be calculating the degree to which Takaichi’s plans will resemble the Abenomics strategy advocated by former PM Shinzo Abe.

A market expert commented:

Unlike in late 2024, the leader has avoided from talking up Abenomics in the recent vote, but experts understand her fundamental position and her appreciation of Shinzo Abe’s Three Arrows philosophy.

Markets could then push to obtain clarity on that position, plus the degree of influence she might become in directing the central bank’s decisions, ahead of the BoJ’s next meeting is seen as a potential turning point with a quarter-point increase seen as a real possibility...

Today’s Schedule

• 8:30 AM UK time: European construction data for last month
• 9.30am BST: British construction figures for September
• 6.30pm BST: Central bank head Andrew Bailey to speak at a financial forum 2025