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Financial Market Response following Japan's Ruling Party Vote

Currency strategists at prominent financial institutions have terminated their previous recommendations to hold an optimistic view on Japan’s currency following Japan’s governing party selected Sanae Takaichi to be its leader.

In a note called “Getting out of the yen,” one lead strategist for foreign exchange stated:

We held a long yen position within our portfolio but have closed this following the party leadership vote. Takaichi’s unforeseen success creates significant doubt regarding Japan’s policy priorities and the timing of BoJ monetary tightening.

Analysts concur that inflation is a problem in Japan, but doubts are resurfacing about the approach to managing it.

The strategist further cautioned evidence of political control across Japan (where the government controls the central bank’s actions) are a tail risk.

Gold Closes In On $4,000 per ounce Threshold

The gold price are reaching unprecedented levels, again, during its best performance in over four decades.

The immediate value of gold has surged by 1% or more this morning to $3,944 per ounce, as it closes in on the $4,000 threshold.

This means gold’s value has surged by 50% since January 1st, likely to achieve its strongest yearly performance since the late 1970s.

Gold has been driven higher throughout the year due to multiple reasons, among them increasing fears that national debt levels are unsustainable.

The new leader’s success in the party vote has further strengthened worries that government officials could seek to boost output through higher borrowing and reduced rates, and use inflation to diminish the worth of new borrowings.

Financial Summary

Tokyo’s bourse has jumped to unprecedented levels today, as the yen falls, following the top position of the governing party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Expectations that Sanae Takaichi will be a PM favoring economic stimulus has ignited a wave of enthusiastic buying driving Japan’s benchmark index up by 5%, rising by more than 2300 points to finish at just over 48,000.

However, the currency is trending in the other direction – it’s down almost 2% relative to the USD at 150.3¥/$.

Sanae Takaichi, set to be the nation’s initial woman PM later this month, is a known fan of the former UK leader. However, while her social policies are right-leaning on social policy, she takes an un-Thatcherite approach on budget matters, and promotes increased public expenditure and accommodative central bank measures.

Consequently, she’s expected to continue Japan’s push to spur activity though fiscal spending and reduced borrowing costs, likely resulting in increased price pressures and greater borrowing.

Hence the falling currency, as investors anticipate fewer interest rates hikes by Japanese authorities relative to previous forecasts.

Japanese long-term bond prices are also down this session, driving higher the return on its 30-year debt near to record highs, on expectations of increased debt issuance and more persistent inflation.

Investors will be calculating to what extent the new leader’s policies will echo the Abenomics strategy advocated by previous leader Shinzo Abe.

A market expert explained:

Different from previous comments, Takaichi has refrained from talking up Abenomics in this LDP leadership campaign, but most know her underlying stance and her appreciation of Shinzo Abe’s Three Arrows approach.

Traders may therefore move to gain understanding regarding her stance, and how much impact she could be in forming monetary policy, ahead of the BoJ’s next meeting is seen as a “live” affair and a rate rise considered likely...

Market Agenda

• 8:30 AM UK time: Eurozone construction PMI for the previous month
• 9.30am BST: British construction figures for September
• 18:30 BST: BOE chief Bailey to give keynote speech at an investment conference 2025