🔗 Share this article

Financial Market Response to the Japanese Ruling Party Vote

FX analysts from prominent banks have reportedly exited their recommendations to hold an optimistic view regarding the yen following Japan’s governing party selected Sanae Takaichi to be its chief.

In a note titled “Leaving yen positions,” a global head for foreign exchange commented:

We went long JPY as part of our strategy but have closed this following the LDP election outcome. Sanae Takaichi’s surprise victory brings back renewed unpredictability around the nation’s policy focus and the expected date of BoJ monetary tightening.

Experts agree that rising prices are an issue in Japan, but uncertainty is now going up again regarding how it will be addressed.

The strategist further cautioned indicators of government influence within Japan (in which politicians direct the BoJ’s moves) are a tail risk.

Gold Closes In On $4,000 per ounce Level

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

The current price of bullion has surged by over 1% in recent trading at $3,944 an ounce, approaching the $4000/oz mark.

This means gold’s value has jumped fifty percent since January 1st, on track for its top annual returns in over 45 years.

Gold has been driven higher throughout the year by several factors, including rising concerns that government debts are unsustainable.

The new leader’s election win in Japan is likely amplifying worries that leaders could seek to boost output by borrowing more and lower interest rates, and rely on inflation to erode the value of the resulting debt.

Trading Update

The Japanese equity market has rallied to a record high today, as the yen falls, following the top position of the country’s ruling party went unexpectedly to by spending advocate Sanae Takaichi.

Predictions that the new leader will be a leader supporting government spending has triggered a surge of optimistic trading that has pushed Japan’s benchmark index higher by five percent, rising by 2315 points to finish at 48,085 points.

But the yen is heading downward – it dropped nearly two percent against the US dollar at 150.3¥/$.

Takaichi, set to be the nation’s initial woman PM soon, is a known fan of the former UK leader. Yet even though she holds conservative views in social matters, the new leader follows a contrasting path on budget matters, and promotes higher state investment and accommodative central bank measures.

Consequently, markets predict to persist with the country’s drive to spur activity through public investment and lower interest rates, potentially causing higher inflation and increased borrowing.

Hence yen depreciation, with traders expecting fewer interest rates hikes from the Bank of Japan compared to earlier expectations.

Japan’s government bond values have also fallen today, lifting the interest rate on its 30-year debt approaching record highs, on expectations of increased debt issuance and more persistent inflation.

Traders are assessing to what extent Takaichi’s plans will mirror the “Abenomics” programme implemented by previous leader Shinzo Abe.

One analyst explained:

In contrast to last year, the leader has avoided from promoting Abenomics in the recent vote, but experts understand her core beliefs and her approval of the former PM’s Three Arrows strategy.

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

Economic Calendar

• 8:30 AM UK time: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for September
• 6:30 PM UK time: Bank of England governor the BOE’s Andrew Bailey to deliver address at Scotland’s Global Investment Summit 2025