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Market Reactions to the Japanese Political Shift

FX analysts from prominent financial institutions have reportedly exited their previous strategies to hold a bullish stance regarding Japan’s currency following the country’s leading political group selected Takaichi as the new head.

In commentary named “Exiting the yen,” one lead strategist for currency analysis stated:

We held a long yen position in our FX Blueprint but are now getting out after the weekend’s election result. The unexpected win by Takaichi creates too much uncertainty regarding the nation’s policy focus as well as the schedule for interest rate increases by the Bank of Japan.

Experts agree that rising prices are an issue in Japan, but questions are mounting about the approach to managing it.

The strategist further cautioned evidence of political control within Japan (in which politicians direct the central bank’s actions) are a tail risk.

Gold Approaches $4,000 per ounce Threshold

Gold prices are achieving unprecedented levels, once more, during its best performance in over four decades.

The current price of gold has surged by 1% or more this morning to $3,944 per ounce, nearing the $4000/oz mark.

This indicates the gold price has increased half again from the beginning of the year, heading for its best annual gains since the Iranian Revolution.

The metal has risen in recent months due to multiple reasons, including growing worries that government debts may be unmanageable.

Sanae Takaichi’s victory in the party vote will only have reinforced worries that politicians will attempt to boost output via increased debt and reduced rates, and use inflation to erode the value of the resulting debt.

Market Overview

Japan’s stock market has surged to unprecedented levels this morning, with the currency dropping, following the leadership of the governing party went unexpectedly to by fiscal dove Sanae Takaichi.

Predictions that Takaichi will become a PM favoring economic stimulus has sparked a rush of positive investment lifting the Tokyo stock index higher by five percent, adding over 2300 points ending at 48,085.

But the yen is trending the opposite way – it’s down nearly two percent relative to the USD at 150.3¥/$.

Sanae Takaichi, who is expected to become Japan’s first female prime minister soon, is a long-time admirer of the former UK leader. But although her social policies are right-leaning in social matters, she takes an un-Thatcherite approach to fiscal policy, and has advocate increased public expenditure and accommodative central bank measures.

As such, analysts anticipate to continue the national effort to stimulate its economy though fiscal spending and lower interest rates, likely resulting in rising inflation and greater borrowing.

Thus the falling currency, as investors anticipate fewer interest rates hikes by Japanese authorities than before.

The nation’s debt securities are also down this session, driving higher the interest rate on its 30-year debt near to peak levels, because of predictions of increased debt issuance and sustained inflationary pressures.

The markets will be calculating how closely Takaichi’s plans will echo the policies of Shinzo Abe advocated by previous leader Abe.

A brokerage head explained:

Unlike in late 2024, she has not engaged from talking up the three-arrow strategy during the party election, but many are aware her fundamental position and her support of the former PM’s three-arrow philosophy.

Investors might thus seek for more information on her policies, plus the degree of influence she may be in forming the BoJ’s policy thinking, ahead of the BoJ’s next meeting is viewed as a key event and a rate rise considered likely...

Today’s Schedule

• 08:30 British Summer Time: European construction data for the previous month
• 9:30 AM UK time: UK construction PMI for September
• 6:30 PM UK time: Central bank head Bailey to deliver address at an investment conference 2025