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Financial Market Response to the Japanese Ruling Party Vote

FX analysts from major banks have reportedly closed their recommendations to hold an optimistic view on the Japanese yen following Japan’s governing party elected Sanae Takaichi as the new head.

In a report called “Getting out of the yen,” one chief for foreign exchange stated:

We held a long yen position within our portfolio but are now getting out due to the LDP election outcome. The unexpected win by Takaichi reintroduces significant doubt around Japan’s policy priorities as well as the schedule for BoJ monetary tightening.

Analysts concur that inflationary pressures exist for Japan, but doubts are resurfacing about the approach to managing it.

The analyst also warned indicators of government influence within Japan (in which politicians direct the BoJ’s moves) are a tail risk.

Gold Nears the $4,000 Mark

Gold prices are achieving unprecedented levels, again, during its best performance since 1979.

The current price of gold has surged by over 1% in recent trading at $3,944 an ounce, approaching the $4000/oz mark.

This shows bullion prices has jumped half again since the start of January, heading for its best annual gains since the late 1970s.

Gold has been driven higher throughout the year due to multiple reasons, including rising concerns that public borrowing are unsustainable.

Sanae Takaichi’s success in the Japanese election will only have reinforced worries that government officials may try to secure growth by borrowing more and cheaper credit, and rely on inflation to diminish the worth of the resulting debt.

Trading Update

Tokyo’s bourse has surged to a record high today, as the yen falls, after the top position of the governing party was surprisingly won by spending advocate Sanae Takaichi.

Expectations that Sanae Takaichi will become a pro-stimulus prime minister has sparked a rush of positive investment lifting the Nikkei 225 share index higher by five percent, adding over 2300 points to close at 48,085.

However, the currency is very much moving in the other direction – it’s down nearly two percent versus the dollar reaching 150.3 against the greenback.

Takaichi, who should become the first woman to lead Japan later this month, has long admired of the former UK leader. However, while she holds conservative views regarding social issues, Takaichi adopts a different strategy to fiscal policy, and has advocate increased public expenditure and accommodative central bank measures.

Consequently, she’s expected to persist with Japan’s push to stimulate its economy through public investment and reduced borrowing costs, which would lead to rising inflation and increased borrowing.

As a result the falling currency, as investors anticipate less monetary tightening by Japanese authorities than before.

Japan’s government bond values are also down in Monday trading, driving higher the interest rate on thirty-year bonds near to record highs, because of predictions of higher borrowing and sustained inflationary pressures.

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

One analyst commented:

Unlike in late 2024, the leader has avoided from highlighting the Abenomics program in this LDP leadership campaign, but most know her underlying stance and her support of the former PM’s Three Arrows philosophy.

Traders may therefore move to obtain clarity on that position, and how much impact she may be in directing the BoJ’s policy thinking, ahead of the BoJ’s next meeting is considered a potential turning point and a rate rise seen as a real possibility...

Today’s Schedule

• 8:30 AM UK time: Eurozone construction PMI for September
• 9:30 AM UK time: British construction figures for the last month
• 18:30 BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025