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Investor Sentiment to the Japanese Political Shift

FX analysts at leading banks have exited their previous positions for holding an optimistic view on the Japanese yen after Japan’s leading political group elected Sanae Takaichi as the new chief.

In commentary named “Leaving yen positions,” one chief for currency analysis commented:

We held a long yen position in our FX Blueprint but have closed this after the party leadership vote. The unexpected win by Takaichi reintroduces significant doubt concerning the nation’s policy focus as well as the schedule for interest rate increases by the Bank of Japan.

Experts agree that inflation is a problem within the Japanese economy, but uncertainty is now going up again about the approach to managing it.

The expert additionally noted indicators of government influence across Japan (where the government controls monetary policy decisions) are a tail risk.

Gold Approaches the $4,000 Mark

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

The immediate value of gold has jumped more than 1 percent today to $3,944 per ounce, approaching the $4000/oz mark.

This means the gold price has jumped fifty percent since January 1st, on track for its strongest yearly performance in over 45 years.

Gold has been driven higher in recent months by several factors, among them rising concerns that national debt levels may be unmanageable.

The new leader’s success in the party vote will only have reinforced apprehensions that leaders will attempt to stimulate the economy through higher borrowing and cheaper credit, and rely on inflation to diminish the worth of new borrowings.

Trading Update

Tokyo’s bourse has jumped to unprecedented levels today, as the yen falls, after the top position of the LDP went unexpectedly to by stimulus supporter Sanae Takaichi.

Forecasts that the new leader will become a leader supporting government spending has sparked a wave of enthusiastic buying lifting the Tokyo stock index to a 5% gain, adding over 2300 points ending at 48,085.

However, the currency is trending in the other direction – it has fallen almost 2% relative to the USD to 150.3 yen per dollar.

The incoming leader, who is expected to become Japan’s first female prime minister in the coming weeks, is a known fan of Thatcher. Yet even though her social policies are right-leaning regarding social issues, Takaichi takes an un-Thatcherite approach on budget matters, and has advocate increased public expenditure and loose monetary policy.

As such, markets predict to continue the national effort to boost economic growth via government outlays and reduced borrowing costs, which would lead to higher inflation and more debt.

As a result yen depreciation, as markets predict less monetary tightening by Japanese authorities than before.

The nation’s debt securities have also fallen today, pushing up the yield on its 30-year debt near to peak levels, because of predictions of increased debt issuance and more persistent inflation.

Traders will be calculating to what extent Sanae Takaichi’s policies will echo the Abenomics strategy advocated by previous leader Shinzo Abe.

A market expert explained:

In contrast to last year, Takaichi has refrained from highlighting Abenomics in the recent vote, but most know her core beliefs and her support of Shinzo Abe’s Three Arrows approach.

Investors might thus seek for more information on her policies, plus the degree of influence she may be in directing monetary policy, ahead of the BoJ’s next meeting is seen as a “live” affair and a rate rise seen as a real possibility...

Economic Calendar

• 8:30 AM UK time: European construction data for last month
• 9:30 AM UK time: British construction figures for September
• 6.30pm BST: Central bank head Bailey to speak at an investment conference 2025