Japanese Yen Tumbles while Nikkei Soars to Record High Following Sanae Takaichi's Party Election Success; Gold Tops $4,000 Price Point

Investor Sentiment following Japan's Leadership Election

FX analysts from major banks have exited their previous recommendations for holding a long position regarding Japan’s currency after Japan’s ruling party elected Takaichi as its head.

In a report titled “Getting out of the yen,” a lead strategist of FX research commented:

Our strategy was bullish on the yen as part of our strategy but have now exited due to the LDP election outcome. Takaichi’s unforeseen success creates significant doubt concerning Japan’s policy priorities and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflationary pressures exist within the Japanese economy, but uncertainty is now going up again about the approach to managing it.

The expert further cautioned that signs of fiscal dominance across Japan (where state authorities influence monetary policy decisions) pose a potential danger.

Gold Approaches $4,000 per ounce Mark

The gold price are achieving unprecedented levels, today, in its top-performing period since the late 1970s.

The spot price of bullion has surged more than 1 percent this morning to $3,944 per ounce, nearing the $4,000 threshold.

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

The metal has risen in recent months because of various drivers, such as growing worries that government debts cannot be maintained.

Takaichi’s election win in the Japanese election is likely amplifying concerns that leaders will attempt to secure growth via increased debt and cheaper credit, and use inflation to diminish the worth of new borrowings.

Financial Summary

Japan’s stock market has surged to unprecedented levels today, while the yen is plunging, after the top position of the governing party was surprisingly won by fiscal dove Sanae Takaichi.

Expectations that the new leader will become a PM favoring economic stimulus has triggered a wave of enthusiastic buying that has pushed Japan’s benchmark index up by 5%, rising by 2315 points to close at 48,085 points.

But the yen is trending downward – it dropped nearly two percent against the US dollar at 150.3¥/$.

Takaichi, who is expected to become Japan’s first female prime minister soon, is a known fan of Margaret Thatcher. But although she holds conservative views regarding social issues, the new leader adopts a different strategy on budget matters, and promotes higher state investment and accommodative central bank measures.

Therefore, analysts anticipate to maintain Japan’s push to boost economic growth via government outlays and cheap credit, likely resulting in rising inflation and increased borrowing.

As a result yen depreciation, with traders expecting reduced rate increases by Japanese authorities relative to previous forecasts.

The nation’s debt securities have also fallen today, pushing up the return on its 30-year debt near to record highs, on expectations of increased debt issuance and sustained inflationary pressures.

Investors are assessing how closely Sanae Takaichi’s policies will mirror the policies of Shinzo Abe pushed by former PM Abe.

A market expert commented:

Unlike in late 2024, she has not engaged from talking up the Abenomics program during the party election, but experts understand her fundamental position and her appreciation of the former PM’s Three Arrows strategy.

Traders may therefore move to gain understanding on that position, and how much impact she could be in forming the central bank’s decisions, with the Bank of Japan’s October session is considered a key event and a 25bp hike potentially on the table...

Economic Calendar

• 8.30am BST: Euro area building activity for last month
• 09:30 BST: UK building sector data for the last month
• 6.30pm BST: Central bank head the BOE’s Andrew Bailey to deliver address at a financial forum this year