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Financial Market Response to the Japanese Leadership Election

Foreign exchange experts at prominent investment firms have reportedly closed their recommendations for holding a bullish stance on Japan’s currency after Japan’s ruling party elected Sanae Takaichi as its leader.

In commentary called “Exiting the yen,” a chief for currency analysis explained:

Our strategy was bullish on the yen within our portfolio but are now getting out following the weekend’s election result. Takaichi’s unforeseen success creates too much uncertainty regarding the nation’s policy focus and the expected date of BoJ monetary tightening.

There is agreement that inflation is a problem in Japan, but uncertainty is now going up again regarding how it will be addressed.

The analyst further cautioned evidence of political control in Japan (in which politicians direct monetary policy decisions) are a tail risk.

Gold Approaches $4,000 per ounce Level

The gold price are achieving unprecedented levels, once more, in its strongest year since the late 1970s.

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

This shows the gold price has increased fifty percent since the start of January, heading for its strongest yearly performance since the Iranian Revolution.

The metal has risen this year by several factors, among them increasing fears that public borrowing are unsustainable.

Takaichi’s success in the Japanese election has further strengthened worries that politicians may try to boost output by borrowing more and reduced rates, and depend on rising prices to erode the value of accumulated debt.

Market Overview

The Japanese equity market has jumped to a record high today, while the yen is plunging, after the chief role of the country’s ruling party was unexpectedly secured by spending advocate Takaichi.

Expectations that the new leader is likely to be a pro-stimulus prime minister has triggered a surge of optimistic trading driving Japan’s benchmark index higher by five percent, as it gained more than 2300 points to finish at 48,085 points.

But the yen is very much moving downward – it dropped almost 2% relative to the USD to 150.3 yen per dollar.

Takaichi, who is expected to become the first woman to lead Japan soon, has long admired of Margaret Thatcher. Yet even though she is conservative regarding social issues, Takaichi adopts a different strategy to fiscal policy, and has advocate a revival of government spending and loose monetary policy.

Therefore, markets predict to continue the national effort to stimulate its economy though fiscal spending and reduced borrowing costs, potentially causing increased price pressures and more debt.

Thus the weaker yen, as investors anticipate reduced rate increases in Tokyo relative to previous forecasts.

Japanese long-term bond prices have also fallen this session, driving higher the yield on long-term Japanese bonds close to all-time highs, because of predictions of higher borrowing and sustained inflationary pressures.

The markets will be calculating the degree to which Sanae Takaichi’s plans will echo the Abenomics strategy advocated by ex-prime minister Shinzo Abe.

A market expert commented:

Unlike in late 2024, the leader has avoided from talking up the Abenomics program during the party election, but experts understand her fundamental position and her appreciation of the former PM’s three-arrow approach.

Traders may therefore move to obtain clarity on her policies, as well as exactly how influential she may be in directing monetary policy, with the Bank of Japan’s October session is viewed as a “live” affair with a quarter-point increase potentially on the table...

Today’s Schedule

• 8:30 AM UK time: European construction data for last month
• 09:30 BST: UK building sector data for September
• 18:30 BST: Central bank head the BOE’s Andrew Bailey to speak at an investment conference 2025