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Investor Sentiment to the Japanese Ruling Party Vote

Currency strategists from major banks have closed their previous recommendations to hold a bullish stance regarding the yen following the country’s ruling party elected Sanae Takaichi to be its chief.

In a note named “Getting out of the yen,” a lead strategist for foreign exchange stated:

Our strategy was bullish on the yen within our portfolio but are now getting out following the party leadership vote. Takaichi’s unforeseen success brings back renewed unpredictability around Japanese economic goals and the expected date of interest rate increases by the Bank of Japan.

Experts agree that inflationary pressures exist within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The strategist also warned that signs of fiscal dominance across Japan (where state authorities influence the central bank’s actions) represent a downside risk.

Gold Closes In On $4,000 per ounce Level

Gold prices are hitting new all-time peaks, again, in its strongest year since 1979.

The current price of gold has climbed by over 1% this morning reaching $3,944/oz, approaching the $4,000 per ounce level.

This indicates the gold price has jumped fifty percent from the beginning of the year, heading for its strongest yearly performance since the Iranian Revolution.

The metal has risen this year by several factors, among them growing worries that government debts may be unmanageable.

The new leader’s victory in Japan has further strengthened apprehensions that politicians could seek to boost output via increased debt and reduced rates, and depend on rising prices to erode the value of the resulting debt.

Financial Summary

Tokyo’s bourse has surged to a record high in Monday trading, as the yen falls, following the leadership of the governing party went unexpectedly to by spending advocate Sanae Takaichi.

Predictions that the new leader is likely to be a pro-stimulus prime minister has ignited a surge of optimistic trading driving the Tokyo stock index up by 5%, rising by over 2300 points to close at just over 48,000.

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

Sanae Takaichi, who should become Japan’s first female prime minister soon, is a long-time admirer of Margaret Thatcher. Yet even though she holds conservative views on social policy, she adopts a different strategy to fiscal policy, and supports a revival of government spending and easy money policies.

Therefore, markets predict to continue Japan’s push to spur activity via government outlays and cheap credit, which would lead to rising inflation and more debt.

Thus yen depreciation, with traders expecting less monetary tightening in Tokyo than before.

Japan’s government bond values are also down this session, lifting the yield on its 30-year debt close to all-time highs, due to forecasts of more government loans and more persistent inflation.

Traders are evaluating to what extent the new leader’s plans will resemble the “Abenomics” programme implemented by previous leader Abe.

A brokerage head noted:

Different from previous comments, she has not engaged from highlighting the three-arrow strategy in the recent vote, but experts understand her fundamental position and her approval of Abe’s three-arrow approach.

Investors might thus seek to obtain clarity on her policies, as well as exactly how influential she might become in forming monetary policy, ahead of the BoJ’s next meeting is viewed as a key event and a 25bp hike considered likely...

Economic Calendar

• 8:30 AM UK time: European construction data for the previous month
• 09:30 BST: British construction figures for September
• 18:30 BST: Central bank head Bailey to give keynote speech at an investment conference 2025