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Investor Sentiment following the Japanese Ruling Party Vote

Currency strategists at leading investment firms have closed their positions to hold an optimistic view regarding the yen after the country’s governing party elected Sanae Takaichi to be its leader.

In a note named “Leaving yen positions,” a chief for foreign exchange stated:

Our strategy was bullish on the yen within our portfolio but are now getting out due to the weekend’s election result. Takaichi’s unforeseen success reintroduces significant doubt concerning the nation’s policy focus and the timing of BoJ monetary tightening.

Experts agree that inflation is a problem for Japan, but questions are mounting about the approach to managing it.

The strategist also warned evidence of political control in Japan (in which politicians direct the central bank’s actions) pose a potential danger.

Gold Approaches $4,000 per ounce Threshold

Bullion values are reaching new all-time peaks, once more, during its best performance in over four decades.

The current price of bullion has jumped more than 1 percent today to $3,944 per ounce, approaching the $4,000 threshold.

This indicates bullion prices has jumped by 50% from the beginning of the year, heading for its top annual returns since the Iranian Revolution.

Gold has been driven higher this year due to multiple reasons, including rising concerns that national debt levels cannot be maintained.

The new leader’s victory in the Japanese election is likely amplifying worries that politicians will attempt to secure growth by borrowing more and cheaper credit, and rely on inflation to reduce the real value of new borrowings.

Trading Update

The Japanese equity market has surged to unprecedented levels in Monday trading, with the currency dropping, following the leadership of the country’s ruling party was surprisingly won by stimulus supporter Sanae Takaichi.

Expectations that Takaichi will be a PM favoring economic stimulus has ignited a rush of positive investment driving Japan’s benchmark index up by 5%, rising by over 2300 points ending at 48,085 points.

However, the currency is heading downward – it’s down almost 2% against the US dollar at 150.3¥/$.

Takaichi, who should become the nation’s initial woman PM later this month, is a long-time admirer of the former UK leader. However, while she is conservative regarding social issues, Takaichi follows a contrasting path on budget matters, and has advocate higher state investment and loose monetary policy.

Consequently, markets predict to continue the national effort to stimulate its economy through public investment and cheap credit, potentially causing higher inflation and increased borrowing.

As a result the falling currency, as markets predict fewer interest rates hikes in Tokyo relative to previous forecasts.

The nation’s debt securities are also down today, lifting the return on its 30-year debt approaching peak levels, on expectations of increased debt issuance and lasting price increases.

Traders will be calculating how closely the new leader’s proposals will mirror the “Abenomics” programme pushed by ex-prime minister Shinzo Abe.

One analyst noted:

Different from previous comments, the leader has avoided from talking up Abenomics in the recent vote, but most know her core beliefs and her appreciation of the former PM’s three-pillar approach.

Traders may therefore move for more information on her policies, as well as exactly how influential she could be in forming the BoJ’s policy thinking, with the Bank of Japan’s October session is seen as a key event and a 25bp hike potentially on the table...

Today’s Schedule

• 8:30 AM UK time: European construction data for September
• 09:30 BST: UK building sector data for September
• 6:30 PM UK time: BOE chief Bailey to give keynote speech at a financial forum 2025