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Market Reactions to Japan's Ruling Party Vote

Currency strategists at prominent investment firms have reportedly exited their previous strategies to hold an optimistic view regarding the yen following Japan’s ruling party selected Sanae Takaichi to be its chief.

In a note titled “Exiting the yen,” a global head for currency analysis explained:

We held a long yen position in our FX Blueprint but have closed this following the LDP election outcome. Takaichi’s unforeseen success reintroduces renewed unpredictability concerning Japanese economic goals and the timing of BoJ monetary tightening.

There is agreement that inflationary pressures exist for Japan, but questions are mounting on how it will be dealt with.

The analyst further cautioned indicators of government influence in Japan (where the government controls the central bank’s actions) pose a potential danger.

Gold Approaches the $4,000 Level

Gold prices are reaching unprecedented levels, once more, in its strongest year since 1979.

The current price of gold has surged more than 1 percent today to $3,944 per ounce, approaching the $4,000 threshold.

This shows bullion prices has surged fifty percent since the start of January, likely to achieve its strongest yearly performance in over 45 years.

Bullion has advanced this year due to multiple reasons, among them rising concerns that government debts cannot be maintained.

Sanae Takaichi’s victory in Japan will only have reinforced worries that government officials will attempt to stimulate the economy via increased debt and reduced rates, and rely on inflation to diminish the worth of the resulting debt.

Financial Summary

Tokyo’s bourse has rallied to an all-time peak in Monday trading, while the yen is plunging, after the leadership of the country’s ruling party was surprisingly won by spending advocate Takaichi.

Expectations that Takaichi will become a pro-stimulus prime minister has sparked a rush of positive investment lifting the Tokyo stock index higher by five percent, as it gained 2315 points to finish at 48,085 points.

But the yen is very much moving in the other direction – it has fallen about 2 percent versus the dollar to 150.3 yen per dollar.

Takaichi, who should become the nation’s initial woman PM in the coming weeks, has long admired of the former UK leader. Yet even though she is conservative on social policy, Takaichi takes an un-Thatcherite approach on budget matters, and supports higher state investment and loose monetary policy.

Therefore, analysts anticipate to persist with the national effort to boost economic growth through public investment and reduced borrowing costs, likely resulting in rising inflation and greater borrowing.

As a result the falling currency, as investors anticipate reduced rate increases from the Bank of Japan than before.

Japan’s government bond values have declined in Monday trading, lifting the return on thirty-year bonds approaching record highs, because of predictions of more government loans and lasting price increases.

Traders are evaluating the degree to which Sanae Takaichi’s policies will echo the “Abenomics” programme implemented by ex-prime minister Shinzo Abe.

One analyst explained:

Unlike in late 2024, she has not engaged from talking up the Abenomics program during the party election, but experts understand her core beliefs and her appreciation of Shinzo Abe’s Three Arrows strategy.

Traders may therefore move for more information on that position, and how much impact she might become in forming the central bank’s decisions, given the October BoJ meeting is seen as a key event and a rate rise considered likely...

Economic Calendar

• 8.30am BST: Euro area building activity for the previous month
• 09:30 BST: British construction figures for September
• 6:30 PM UK time: Bank of England governor Bailey to speak at Scotland’s Global Investment Summit this year