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Financial Market Response to the Japanese Political Shift

Currency strategists from prominent banks have reportedly exited their previous recommendations to hold a bullish stance regarding the Japanese yen after Japan’s leading political group selected Takaichi as its chief.

In a report called “Exiting the yen,” one lead strategist for currency analysis explained:

We held a long yen position as part of our strategy but have now exited due to the LDP election outcome. Sanae Takaichi’s surprise victory creates renewed unpredictability around Japanese economic goals as well as the schedule for interest rate increases by the Bank of Japan.

Experts agree that rising prices are an issue within the Japanese economy, but questions are mounting about the approach to managing it.

The analyst additionally noted evidence of political control within Japan (where state authorities influence monetary policy decisions) are a tail risk.

Gold Approaches $4,000 per ounce Mark

Gold prices are reaching fresh record highs, once more, in its strongest year in over four decades.

The immediate value of bullion has surged by over 1% today to $3,944 per ounce, approaching the $4,000 per ounce level.

This shows the gold price has increased half again from the beginning of the year, heading for its best annual gains since the late 1970s.

Gold has been driven higher throughout the year by several factors, such as growing worries that public borrowing cannot be maintained.

The new leader’s election win in the party vote has further strengthened apprehensions that politicians could seek to stimulate the economy through higher borrowing and reduced rates, and depend on rising prices to diminish the worth of the resulting debt.

Trading Update

The Japanese equity market has rallied to an all-time peak today, while the yen is plunging, following the leadership of the governing party was surprisingly won by stimulus supporter Sanae Takaichi.

Forecasts that the new leader is likely to be a PM favoring economic stimulus has ignited a rush of positive investment that has pushed the Nikkei 225 share index up by 5%, adding 2315 points ending at 48,085 points.

However, the currency is trending the opposite way – it’s down nearly two percent relative to the USD reaching 150.3 against the greenback.

The incoming leader, set to be the nation’s initial woman PM later this month, is a known fan of Margaret Thatcher. However, while she is conservative in social matters, the new leader adopts a different strategy in economic policy, and has advocate increased public expenditure and accommodative central bank measures.

Consequently, markets predict to maintain Japan’s push to boost economic growth through public investment and cheap credit, which would lead to higher inflation and greater borrowing.

Thus the weaker yen, as markets predict reduced rate increases in Tokyo than before.

The nation’s debt securities have declined this session, lifting the interest rate on long-term Japanese bonds close to all-time highs, because of predictions of increased debt issuance and more persistent inflation.

Traders are evaluating the degree to which Takaichi’s proposals will resemble the Abenomics strategy implemented by previous leader Shinzo Abe.

A market expert commented:

Unlike in late 2024, Takaichi has refrained from highlighting Abenomics in the recent vote, but experts understand her fundamental position and her appreciation of Abe’s Three Arrows approach.

Markets could then push to gain understanding regarding her stance, plus the degree of influence she may be in forming the central bank’s decisions, given the October BoJ meeting is considered a “live” affair and a rate rise potentially on the table...

Market Agenda

• 8.30am BST: Euro area building activity for last month
• 9:30 AM UK time: UK construction PMI for September
• 18:30 BST: Central bank head Bailey to deliver address at an investment conference 2025