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Financial Market Response to Japan's Ruling Party Vote

Currency strategists at leading banks have reportedly exited their recommendations to hold an optimistic view regarding the Japanese yen following Japan’s governing party chose Takaichi as its chief.

In a report titled “Getting out of the yen,” one global head of FX research commented:

Our strategy was bullish on the yen in our FX Blueprint but have closed this after the party leadership vote. The unexpected win by Takaichi reintroduces significant doubt around Japanese economic goals and the timing of the BoJ [Bank of Japan] hiking cycle.

Analysts concur that rising prices are an issue within the Japanese economy, but uncertainty is now going up again regarding how it will be addressed.

The strategist additionally noted that signs of fiscal dominance within Japan (where the government controls the central bank’s actions) pose a potential danger.

Gold Closes In On $4,000 per ounce Level

The gold price are reaching unprecedented levels, once more, in its top-performing period in over four decades.

The current price of gold has surged more than 1 percent today at $3,944 an ounce, nearing the $4,000 threshold.

This shows gold’s value has jumped by 50% since the start of January, likely to achieve its top annual returns in over 45 years.

Bullion has advanced in recent months due to multiple reasons, among them rising concerns that national debt levels may be unmanageable.

The new leader’s success in the Japanese election will only have reinforced worries that politicians may try to secure growth via increased debt and cheaper credit, and depend on rising prices to reduce the real value of new borrowings.

Market Overview

Japan’s stock market has surged to a record high in Monday trading, as the yen falls, following the chief role of the country’s ruling party was surprisingly won by fiscal dove Sanae Takaichi.

Predictions that Takaichi is likely to be a pro-stimulus prime minister has ignited a wave of enthusiastic buying lifting Japan’s benchmark index higher by five percent, as it gained more than 2300 points to close at 48,085 points.

Yet the Japanese yen is trending downward – it’s down about 2 percent against the US dollar at 150.3¥/$.

Takaichi, set to be the first woman to lead Japan later this month, is a known fan of the former UK leader. Yet even though she is conservative in social matters, the new leader adopts a different strategy to fiscal policy, and supports a revival of government spending and accommodative central bank measures.

As such, analysts anticipate to persist with Japan’s push to boost economic growth via government outlays and reduced borrowing costs, potentially causing rising inflation and more debt.

As a result the falling currency, with traders expecting less monetary tightening from the Bank of Japan compared to earlier expectations.

Japan’s government bond values have also fallen today, pushing up the return on thirty-year bonds close to all-time highs, on expectations of increased debt issuance and sustained inflationary pressures.

Traders are evaluating the degree to which the new leader’s plans will resemble the Abenomics strategy pushed by previous leader Shinzo Abe.

A market expert noted:

Unlike in late 2024, Takaichi has refrained from promoting the Abenomics program during the party election, but many are aware her underlying stance and her support of Abe’s three-arrow strategy.

Markets could then push for more information regarding her stance, and how much impact she could be in directing the BoJ’s policy thinking, ahead of the BoJ’s next meeting is seen as a potential turning point and a 25bp hike seen as a real possibility...

Economic Calendar

• 08:30 British Summer Time: Eurozone construction PMI for last month
• 9:30 AM UK time: UK building sector data for September
• 6.30pm BST: Bank of England governor Andrew Bailey to deliver address at an investment conference 2025