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Investor Sentiment following Japan's Political Shift

Currency strategists from prominent investment firms have exited their previous recommendations for holding a long position on the yen after Japan’s ruling party chose Takaichi as the new head.

In a note called “Leaving yen positions,” one lead strategist for foreign exchange commented:

Our strategy was bullish on the yen within our portfolio but are now getting out following the weekend’s election result. Sanae Takaichi’s surprise victory brings back too much uncertainty concerning Japan’s policy priorities as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflation is a problem for Japan, but doubts are resurfacing on how it will be dealt with.

The strategist further cautioned indicators of government influence in Japan (in which politicians direct the BoJ’s moves) represent a downside risk.

Gold Closes In On the $4,000/oz Mark

Gold prices are hitting fresh record highs, today, during its best performance in over four decades.

The immediate value of gold has climbed more than 1 percent this morning at $3,944 an ounce, nearing the $4000/oz mark.

This shows bullion prices has surged by 50% since January 1st, likely to achieve its best annual gains since the Iranian Revolution.

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

Takaichi’s victory in the party vote is likely amplifying concerns that leaders could seek to stimulate the economy by borrowing more and cheaper credit, and rely on inflation to diminish the worth of accumulated debt.

Trading Update

The Japanese equity market has jumped to a record high this morning, as the yen falls, after the top position of the country’s ruling party went unexpectedly to by spending advocate Takaichi.

Expectations that the new leader will be a leader supporting government spending has triggered a rush of positive investment that has pushed the Nikkei 225 share index up by 5%, adding over 2300 points ending at 48,085 points.

But the yen is heading the opposite way – it has fallen about 2 percent against the US dollar at 150.3¥/$.

Takaichi, who is expected to become the nation’s initial woman PM later this month, is a known fan of Thatcher. But although she holds conservative views on social policy, the new leader adopts a different strategy to fiscal policy, and has advocate higher state investment and easy money policies.

Consequently, she’s expected to persist with the country’s drive to boost economic growth though fiscal spending and reduced borrowing costs, likely resulting in higher inflation and increased borrowing.

Thus yen depreciation, as investors anticipate reduced rate increases by Japanese authorities relative to previous forecasts.

Japanese long-term bond prices are also down today, pushing up the return on thirty-year bonds near to all-time highs, due to forecasts of higher borrowing and lasting price increases.

Traders are evaluating to what extent Takaichi’s policies will mirror the “Abenomics” programme advocated by former PM Abe.

A market expert explained:

In contrast to last year, the leader has avoided from talking up the three-arrow strategy during the party election, but most know her core beliefs and her appreciation of Shinzo Abe’s three-arrow philosophy.

Investors might thus seek for more information on that position, and how much impact she could be in directing the BoJ’s policy thinking, with the Bank of Japan’s October session is viewed as a “live” affair and a rate rise considered likely...

Today’s Schedule

• 8:30 AM UK time: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for the last month
• 6:30 PM UK time: Central bank head the BOE’s Andrew Bailey to speak at a financial forum 2025