🔗 Share this article

Financial Market Response to the Japanese Ruling Party Vote

Currency strategists at major banks have terminated their previous strategies to hold a long position regarding the Japanese yen after the country’s governing party elected Sanae Takaichi to be its head.

In a report titled “Getting out of the yen,” a chief of FX research commented:

We held a long yen position as part of our strategy but are now getting out following the weekend’s election result. Sanae Takaichi’s surprise victory reintroduces significant doubt concerning the nation’s policy focus and the timing of interest rate increases by the Bank of Japan.

Analysts concur that inflationary pressures exist for Japan, but questions are mounting regarding how it will be addressed.

The strategist additionally noted that signs of fiscal dominance within Japan (in which politicians direct the BoJ’s moves) pose a potential danger.

Gold Approaches the $4,000 Mark

The gold price are achieving unprecedented levels, today, in its strongest year since 1979.

The spot price of gold has climbed by 1% or more in recent trading reaching $3,944/oz, nearing the $4000/oz mark.

This shows bullion prices has increased fifty percent since January 1st, heading for its top annual returns since the Iranian Revolution.

The metal has risen in recent months because of various drivers, such as growing worries that government debts are unsustainable.

Takaichi’s election win in the Japanese election will only have reinforced apprehensions that politicians may try to secure growth by borrowing more and reduced rates, and depend on rising prices to diminish the worth of the resulting debt.

Financial Summary

Tokyo’s bourse has jumped to a record high today, as the yen falls, following the chief role of the governing party was surprisingly won by fiscal dove Takaichi.

Predictions that Sanae Takaichi is likely to be a pro-stimulus prime minister has sparked a wave of enthusiastic buying driving the Nikkei 225 share index higher by five percent, as it gained over 2300 points ending at 48,085.

However, the currency is heading in the other direction – it dropped nearly two percent versus the dollar to 150.3 yen per dollar.

Sanae Takaichi, set to be Japan’s first female prime minister soon, is a long-time admirer of the former UK leader. However, while her social policies are right-leaning regarding social issues, Takaichi takes an un-Thatcherite approach on budget matters, and promotes higher state investment and loose monetary policy.

As such, analysts anticipate to continue the national effort to boost economic growth through public investment and lower interest rates, likely resulting in increased price pressures and increased borrowing.

As a result yen depreciation, with traders expecting fewer interest rates hikes from the Bank of Japan than before.

Japanese long-term bond prices have declined in Monday trading, pushing up the return on its 30-year debt near to all-time highs, because of predictions of increased debt issuance and lasting price increases.

Investors are assessing the degree to which Sanae Takaichi’s plans will mirror the Abenomics strategy pushed by former PM Shinzo Abe.

One analyst commented:

In contrast to last year, she has not engaged from talking up Abenomics during the party election, but many are aware her fundamental position and her approval of Abe’s Three Arrows approach.

Investors might thus seek for more information on that position, as well as exactly how influential she could be in directing the central bank’s decisions, with the Bank of Japan’s October session is considered a potential turning point with a quarter-point increase potentially on the table...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for the previous month
• 9.30am BST: UK building sector data for the last month
• 6:30 PM UK time: BOE chief the BOE’s Andrew Bailey to give keynote speech at an investment conference 2025