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Investor Sentiment to the Japanese Leadership Election

Foreign exchange experts at prominent financial institutions have reportedly closed their previous positions for holding a long position on the yen following the country’s governing party selected Sanae Takaichi as the new leader.

In a note named “Leaving yen positions,” a global head for foreign exchange commented:

We went long JPY in our FX Blueprint but have closed this following the party leadership vote. Sanae Takaichi’s surprise victory reintroduces significant doubt concerning Japan’s policy priorities and the timing of BoJ monetary tightening.

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

The strategist further cautioned evidence of political control in Japan (where state authorities influence monetary policy decisions) are a tail risk.

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

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

The immediate value of gold has climbed by over 1% today reaching $3,944/oz, as it closes in on the $4000/oz mark.

This indicates gold’s value has jumped fifty percent since January 1st, heading for its best annual gains in over 45 years.

The metal has risen throughout the year because of various drivers, among them rising concerns that public borrowing cannot be maintained.

Takaichi’s victory in the Japanese election is likely amplifying concerns that government officials may try to stimulate the economy via increased debt and lower interest rates, and rely on inflation to reduce the real value of new borrowings.

Financial Summary

Tokyo’s bourse has jumped to an all-time peak in Monday trading, with the currency dropping, following the chief role of the LDP was surprisingly won by spending advocate Takaichi.

Forecasts that Takaichi will become a pro-stimulus prime minister has sparked a wave of enthusiastic buying lifting Japan’s benchmark index higher by five percent, adding 2315 points to finish at 48,085.

But the yen is heading downward – it has fallen almost 2% against the US dollar at 150.3¥/$.

Sanae Takaichi, who is expected to become Japan’s first female prime minister later this month, is a long-time admirer of Margaret Thatcher. Yet even though she holds conservative views on social policy, the new leader follows a contrasting path in economic policy, and supports a revival of government spending and accommodative central bank measures.

As such, she’s expected to continue the country’s drive to spur activity via government outlays and reduced borrowing costs, which would lead to rising inflation and increased borrowing.

Hence the weaker yen, as investors anticipate reduced rate increases by Japanese authorities relative to previous forecasts.

Japanese long-term bond prices have also fallen this session, driving higher the interest rate on long-term Japanese bonds approaching record highs, due to forecasts of higher borrowing and lasting price increases.

Investors will be calculating how closely Sanae Takaichi’s policies will echo the policies of Shinzo Abe pushed by previous leader Abe.

One analyst noted:

Different from previous comments, the leader has avoided from highlighting the Abenomics program in the recent vote, but experts understand her core beliefs and her support of Shinzo Abe’s three-pillar approach.

Investors might thus seek to obtain clarity regarding her stance, as well as exactly how influential she may be in directing monetary policy, with the Bank of Japan’s October session is viewed as a potential turning point and a rate rise seen as a real possibility...

Economic Calendar

• 8.30am BST: Eurozone construction PMI for the previous month
• 09:30 BST: British construction figures for the last month
• 18:30 BST: Central bank head Andrew Bailey to speak at Scotland’s Global Investment Summit 2025