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Financial Market Response following the Japanese Political Shift

FX analysts from major investment firms have reportedly terminated their previous strategies for holding a long position regarding the yen following Japan’s governing party chose Sanae Takaichi as the new leader.

In a report called “Exiting the yen,” one chief for currency analysis commented:

We went long JPY as part of our strategy but have closed this due to the weekend’s election result. Takaichi’s unforeseen success reintroduces significant doubt concerning Japanese economic goals and the timing of BoJ monetary tightening.

There is agreement that inflationary pressures exist for Japan, but uncertainty is now going up again about the approach to managing it.

The expert additionally noted evidence of political control in Japan (where state authorities influence the BoJ’s moves) represent a downside risk.

Gold Approaches $4,000 per ounce Threshold

The gold price are reaching fresh record highs, once more, during its best performance since 1979.

The spot price of bullion has surged by 1% or more today at $3,944 an ounce, nearing the $4000/oz mark.

This shows bullion prices has increased half again since the start of January, likely to achieve its strongest yearly performance since the Iranian Revolution.

Bullion has advanced throughout the year due to multiple reasons, including increasing fears that national debt levels are unsustainable.

Takaichi’s victory in the party vote will only have reinforced concerns that politicians will attempt to stimulate the economy via increased debt and reduced rates, and depend on rising prices to reduce the real value of accumulated debt.

Market Overview

Tokyo’s bourse has rallied to unprecedented levels today, while the yen is plunging, after the top position of the governing party was unexpectedly secured by fiscal dove Sanae Takaichi.

Predictions that the new leader will be a leader supporting government spending has ignited a surge of optimistic trading lifting the Tokyo stock index higher by five percent, rising by 2315 points to finish at 48,085.

However, the currency is trending the opposite way – it’s down almost 2% versus the dollar reaching 150.3 against the greenback.

Takaichi, set to be the first woman to lead Japan in the coming weeks, is a known fan of Thatcher. But although she is conservative in social matters, the new leader adopts a different strategy to fiscal policy, and has advocate a revival of government spending and loose monetary policy.

As such, analysts anticipate to persist with the national effort to stimulate its economy through public investment and lower interest rates, which would lead to higher inflation and greater borrowing.

As a result yen depreciation, as investors anticipate reduced rate increases from the Bank of Japan compared to earlier expectations.

The nation’s debt securities are also down today, pushing up the return on long-term Japanese bonds close to record highs, on expectations of higher borrowing and more persistent inflation.

Investors are evaluating how closely the new leader’s policies will echo the Abenomics strategy implemented by former PM Shinzo Abe.

One analyst commented:

Different from previous comments, the leader has avoided from talking up Abenomics in the recent vote, but many are aware her underlying stance and her approval of Abe’s three-pillar approach.

Markets could then push to gain understanding regarding her stance, plus the degree of influence she might become in shaping the BoJ’s policy thinking, given the October BoJ meeting is considered a “live” affair and a rate rise seen as a real possibility...

Market Agenda

• 08:30 British Summer Time: Eurozone construction PMI for September
• 9:30 AM UK time: UK building sector data for September
• 18:30 BST: Central bank head Bailey to deliver address at an investment conference 2025