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Investor Sentiment to Japan's Political Shift

Foreign exchange experts from leading financial institutions have reportedly terminated their previous recommendations to hold a bullish stance regarding the Japanese yen following the country’s governing party selected Sanae Takaichi to be its head.

In a note named “Leaving yen positions,” a chief for currency analysis stated:

Our strategy was bullish on the yen in our FX Blueprint but have now exited due to the weekend’s election result. Sanae Takaichi’s surprise victory reintroduces renewed unpredictability concerning the nation’s policy focus and the timing of interest rate increases by the Bank of Japan.

Analysts concur that inflationary pressures exist for Japan, but questions are mounting regarding how it will be addressed.

The strategist also warned indicators of government influence within Japan (where the government controls monetary policy decisions) represent a downside risk.

Gold Nears the $4,000 Threshold

Gold prices are reaching unprecedented levels, once more, in its top-performing period since 1979.

The immediate value of gold has jumped by over 1% in recent trading at $3,944 an ounce, nearing the $4,000 per ounce level.

This means bullion prices has surged fifty percent from the beginning of the year, on track for its top annual returns since the late 1970s.

Gold has been driven higher throughout the year because of various drivers, such as growing worries that public borrowing are unsustainable.

Takaichi’s victory in Japan has further strengthened concerns that leaders may try to secure growth through higher borrowing and cheaper credit, and rely on inflation to reduce the real value of new borrowings.

Market Overview

Tokyo’s bourse has surged to a record high today, as the yen falls, after the top position of the LDP was unexpectedly secured by spending advocate Takaichi.

Predictions that Sanae Takaichi is likely to be a PM favoring economic stimulus has sparked a wave of enthusiastic buying driving the Tokyo stock index higher by five percent, rising by 2315 points ending at 48,085.

But the yen is trending downward – it’s down almost 2% versus the dollar at 150.3¥/$.

Sanae Takaichi, set to be the nation’s initial woman PM soon, is a long-time admirer of Thatcher. But although she is conservative in social matters, Takaichi follows a contrasting path to fiscal policy, and has advocate higher state investment and accommodative central bank measures.

Consequently, she’s expected to continue the national effort to boost economic growth though fiscal spending and lower interest rates, potentially causing increased price pressures and greater borrowing.

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

Japanese long-term bond prices are also down today, pushing up the interest rate on long-term Japanese bonds close to all-time highs, on expectations of increased debt issuance and more persistent inflation.

Traders are evaluating the degree to which Sanae Takaichi’s plans will echo the “Abenomics” programme implemented by previous leader Shinzo Abe.

One analyst noted:

Unlike in late 2024, the leader has avoided from talking up the Abenomics program in the recent vote, but many are aware her fundamental position and her support of Shinzo Abe’s three-pillar philosophy.

Traders may therefore move for more information regarding her stance, plus the degree of influence she may be in shaping the central bank’s decisions, ahead of the BoJ’s next meeting is considered a “live” affair with a quarter-point increase considered likely...

Today’s Schedule

• 8:30 AM UK time: Eurozone construction PMI for the previous month
• 9.30am BST: British construction figures for September
• 6:30 PM UK time: Central bank head Andrew Bailey to speak at Scotland’s Global Investment Summit this year