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Investor Sentiment following Japan's Leadership Election

Currency strategists at leading investment firms have reportedly exited their recommendations for holding a bullish stance regarding the yen after the country’s governing party chose Takaichi as its head.

In a note called “Getting out of the yen,” one global head for currency analysis explained:

We held a long yen position as part of our strategy but have now exited after the party leadership vote. Takaichi’s unforeseen success brings back too much uncertainty regarding Japanese economic goals and the expected date of BoJ monetary tightening.

Experts agree that rising prices are an issue in Japan, but uncertainty is now going up again about the approach to managing it.

The analyst further cautioned that signs of fiscal dominance in Japan (in which politicians direct the central bank’s actions) represent a downside risk.

Gold Closes In On $4,000 per ounce Mark

The gold price are hitting new all-time peaks, again, in its top-performing period in over four decades.

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

This indicates the gold price has increased half again from the beginning of the year, heading for its top annual returns in over 45 years.

The metal has risen in recent months because of various drivers, including growing worries that government debts may be unmanageable.

The new leader’s election win in the party vote is likely amplifying apprehensions that government officials may try to stimulate the economy through higher borrowing and lower interest rates, and rely on inflation to diminish the worth of accumulated debt.

Financial Summary

Japan’s stock market has jumped to an all-time peak in Monday trading, with the currency dropping, following the top position of the governing party was surprisingly won by spending advocate Takaichi.

Predictions that Takaichi is likely to be a leader supporting government spending has ignited a surge of optimistic trading lifting the Tokyo stock index higher by five percent, adding 2315 points to close at just over 48,000.

However, the currency is very much moving in the other direction – it dropped about 2 percent relative to the USD reaching 150.3 against the greenback.

Sanae Takaichi, who is expected to become the nation’s initial woman PM in the coming weeks, is a long-time admirer of Margaret Thatcher. Yet even though her social policies are right-leaning in social matters, Takaichi takes an un-Thatcherite approach to fiscal policy, and supports increased public expenditure and easy money policies.

Consequently, she’s expected to maintain the country’s drive to spur activity via government outlays and lower interest rates, likely resulting in increased price pressures and more debt.

Thus the falling currency, as markets predict reduced rate increases from the Bank of Japan relative to previous forecasts.

Japanese long-term bond prices are also down today, driving higher the yield on thirty-year bonds close to all-time highs, on expectations of increased debt issuance and more persistent inflation.

The markets will be calculating how closely Sanae Takaichi’s proposals will echo the “Abenomics” programme advocated by former PM Shinzo Abe.

A brokerage head explained:

In contrast to last year, she has not engaged from talking up the Abenomics program in the recent vote, but most know her fundamental position and her appreciation of Shinzo Abe’s Three Arrows approach.

Markets could then push for more information on that position, as well as exactly how influential she might become in forming monetary policy, with the Bank of Japan’s October session is seen as a key event with a quarter-point increase potentially on the table...

Market Agenda

• 8:30 AM UK time: Euro area building activity for the previous month
• 09:30 BST: British construction figures for September
• 6.30pm BST: Bank of England governor the BOE’s Andrew Bailey to give keynote speech at a financial forum 2025