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Market Reactions following Japan's Leadership Election

Currency strategists from leading financial institutions have terminated their previous positions for holding an optimistic view regarding Japan’s currency after Japan’s governing party elected Sanae Takaichi as the new chief.

In commentary called “Leaving yen positions,” a global head for currency analysis stated:

We held a long yen position within our portfolio but have now exited due to the party leadership vote. The unexpected win by Takaichi brings back too much uncertainty concerning Japanese economic goals and the expected date of BoJ monetary tightening.

Experts agree that rising prices are an issue in Japan, but uncertainty is now going up again about the approach to managing it.

The strategist further cautioned evidence of political control in Japan (in which politicians direct the central bank’s actions) represent a downside risk.

Gold Nears the $4,000/oz Threshold

Bullion values are hitting fresh record highs, again, in its top-performing period in over four decades.

The spot price of bullion has climbed by 1% or more this morning reaching $3,944/oz, nearing the $4,000 threshold.

This means the gold price has increased half again since January 1st, likely to achieve its strongest yearly performance since the late 1970s.

Gold has been driven higher in recent months due to multiple reasons, including rising concerns that public borrowing may be unmanageable.

Takaichi’s election win in Japan is likely amplifying worries that leaders could seek to stimulate the economy through higher borrowing and lower interest rates, and use inflation to diminish the worth of new borrowings.

Financial Summary

Japan’s stock market has jumped to unprecedented levels in Monday trading, with the currency dropping, after the top position of the LDP was surprisingly won by fiscal dove Takaichi.

Forecasts that Takaichi will be a pro-stimulus prime minister has sparked a rush of positive investment driving the Tokyo stock index up by 5%, adding over 2300 points ending at 48,085.

However, the currency is heading downward – it dropped almost 2% versus the dollar reaching 150.3 against the greenback.

Takaichi, who should become Japan’s first female prime minister later this month, is a long-time admirer of the former UK leader. But although she is conservative regarding social issues, Takaichi adopts a different strategy in economic policy, and promotes increased public expenditure and easy money policies.

Therefore, markets predict to persist with the national effort to spur activity though fiscal spending and cheap credit, potentially causing increased price pressures and greater borrowing.

As a result the weaker yen, as markets predict reduced rate increases in Tokyo compared to earlier expectations.

The nation’s debt securities have declined this session, pushing up the yield on long-term Japanese bonds approaching peak levels, because of predictions of higher borrowing and more persistent inflation.

Traders are assessing how closely Sanae Takaichi’s proposals will echo the “Abenomics” programme pushed by former PM Abe.

A brokerage head noted:

In contrast to last year, the leader has avoided from promoting the three-arrow strategy in this LDP leadership campaign, but most know her underlying stance and her support of the former PM’s three-pillar philosophy.

Investors might thus seek for more information regarding her stance, plus the degree of influence she might become in shaping the BoJ’s policy thinking, ahead of the BoJ’s next meeting is viewed as a potential turning point with a quarter-point increase considered likely...

Today’s Schedule

• 8.30am BST: European construction data for the previous month
• 9.30am BST: British construction figures for September
• 6.30pm BST: Central bank head the BOE’s Andrew Bailey to speak at an investment conference 2025