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Market Reactions to Japan's Ruling Party Vote

Foreign exchange experts at leading banks have reportedly closed their positions to hold an optimistic view regarding the Japanese yen after Japan’s leading political group chose Takaichi to be its chief.

In a note named “Leaving yen positions,” a chief of FX research explained:

We held a long yen position in our FX Blueprint but have now exited due to the weekend’s election result. Takaichi’s unforeseen success brings back too much uncertainty concerning the nation’s policy focus and the timing of BoJ monetary tightening.

There is agreement that inflation is a problem for Japan, but questions are mounting about the approach to managing it.

The expert additionally noted indicators of government influence in Japan (where the government controls the central bank’s actions) pose a potential danger.

Gold Nears $4,000 per ounce Level

Gold prices are achieving fresh record highs, once more, during its best performance since 1979.

The immediate value of gold has jumped by over 1% today to $3,944 per ounce, approaching the $4000/oz mark.

This indicates bullion prices has increased half again from the beginning of the year, on track for its best annual gains in over 45 years.

The metal has risen in recent months by several factors, including growing worries that government debts cannot be maintained.

Sanae Takaichi’s success in the Japanese election has further strengthened apprehensions that government officials will attempt to boost output by borrowing more and lower interest rates, and rely on inflation to diminish the worth of the resulting debt.

Financial Summary

The Japanese equity market has jumped to a record high this morning, while the yen is plunging, following the chief role of the LDP was unexpectedly secured by fiscal dove Sanae Takaichi.

Forecasts that Sanae Takaichi will be a PM favoring economic stimulus has sparked a wave of enthusiastic buying that has pushed the Tokyo stock index up by 5%, rising by 2315 points to finish at just over 48,000.

However, the currency is trending downward – it dropped almost 2% relative to the USD to 150.3 yen per dollar.

The incoming leader, who is expected to become the nation’s initial woman PM soon, is a long-time admirer of Thatcher. Yet even though her social policies are right-leaning regarding social issues, Takaichi follows a contrasting path in economic policy, and promotes higher state investment and accommodative central bank measures.

As such, analysts anticipate to maintain the national effort to boost economic growth though fiscal spending and reduced borrowing costs, likely resulting in increased price pressures and greater borrowing.

Hence the falling currency, as markets predict reduced rate increases by Japanese authorities relative to previous forecasts.

The nation’s debt securities have declined today, driving higher the yield on thirty-year bonds close to all-time highs, because of predictions of higher borrowing and sustained inflationary pressures.

Investors will be calculating to what extent the new leader’s policies will resemble the “Abenomics” programme advocated by previous leader Shinzo Abe.

One analyst commented:

Different from previous comments, the leader has avoided from promoting the three-arrow strategy during the party election, but experts understand her core beliefs and her appreciation of Shinzo Abe’s three-arrow approach.

Investors might thus seek to gain understanding on her policies, as well as exactly how influential she may be in shaping the BoJ’s policy thinking, ahead of the BoJ’s next meeting is viewed as a key event and a rate rise seen as a real possibility...

Market Agenda

• 8:30 AM UK time: Eurozone construction PMI for last month
• 9.30am BST: UK building sector data for the last month
• 18:30 BST: Central bank head Bailey to speak at Scotland’s Global Investment Summit 2025