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Market Reactions to Japan's Ruling Party Vote

Foreign exchange experts from leading investment firms have closed their previous strategies to hold an optimistic view regarding Japan’s currency after the country’s ruling party selected Takaichi as its leader.

In a report called “Leaving yen positions,” one chief for foreign exchange explained:

We went long JPY as part of our strategy but have closed this following the party leadership vote. The unexpected win by Takaichi creates too much uncertainty regarding Japanese economic goals as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

There is agreement that rising prices are an issue in Japan, but questions are mounting on how it will be dealt with.

The expert also warned indicators of government influence in Japan (where state authorities influence the BoJ’s moves) represent a downside risk.

Gold Closes In On the $4,000 Threshold

Bullion values are hitting unprecedented levels, again, in its strongest year since the late 1970s.

The current price of the precious metal has climbed by 1% or more in recent trading at $3,944 an ounce, nearing the $4,000 threshold.

This means the gold price has surged by 50% from the beginning of the year, likely to achieve its top annual returns in over 45 years.

Gold has been driven higher in recent months by several factors, including growing worries that government debts may be unmanageable.

Takaichi’s election win in the party vote has further strengthened concerns that politicians could seek to boost output by borrowing more and lower interest rates, and rely on inflation to reduce the real value of accumulated debt.

Market Overview

The Japanese equity market has jumped to unprecedented levels in Monday trading, as the yen falls, after the top position of the LDP went unexpectedly to by stimulus supporter Sanae Takaichi.

Forecasts that Sanae Takaichi will be a pro-stimulus prime minister has sparked a surge of optimistic trading lifting the Tokyo stock index up by 5%, adding over 2300 points ending at just over 48,000.

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

The incoming leader, set to be the nation’s initial woman PM soon, is a known fan of the former UK leader. However, while she holds conservative views regarding social issues, the new leader adopts a different strategy on budget matters, and supports increased public expenditure and loose monetary policy.

Therefore, she’s expected to persist with Japan’s push to spur activity via government outlays and cheap credit, likely resulting in rising inflation and more debt.

Thus the weaker yen, with traders expecting fewer interest rates hikes from the Bank of Japan than before.

The nation’s debt securities have also fallen this session, lifting the return on long-term Japanese bonds close to all-time highs, on expectations of increased debt issuance and lasting price increases.

The markets are assessing how closely Sanae Takaichi’s policies will echo the Abenomics strategy implemented by ex-prime minister Shinzo Abe.

One analyst noted:

Different from previous comments, Takaichi has refrained from talking up Abenomics in this LDP leadership campaign, but many are aware her core beliefs and her support of Abe’s three-arrow strategy.

Traders may therefore move for more information on that position, and how much impact she could be in directing the central bank’s decisions, 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: Eurozone construction PMI for September
• 9:30 AM UK time: UK construction PMI for September
• 6:30 PM UK time: Central bank head the BOE’s Andrew Bailey to give keynote speech at an investment conference 2025