🔗 Share this article

Financial Market Response to the Japanese Leadership Election

Currency strategists from leading banks have reportedly exited their strategies to hold a long position on Japan’s currency after Japan’s ruling party chose Sanae Takaichi as the new chief.

In commentary titled “Leaving yen positions,” a lead strategist of FX research stated:

We held a long yen position in our FX Blueprint but have closed this following the party leadership vote. The unexpected win by Takaichi brings back too much uncertainty concerning the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Analysts concur that rising prices are an issue for Japan, but questions are mounting about the approach to managing it.

The strategist further cautioned evidence of political control across Japan (where state authorities influence the central bank’s actions) represent a downside risk.

Gold Nears the $4,000/oz Threshold

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

The spot price of gold has jumped more than 1 percent in recent trading to $3,944 per ounce, approaching the $4,000 threshold.

This shows bullion prices has jumped half again since January 1st, likely to achieve its best annual gains since the late 1970s.

The metal has risen in recent months due to multiple reasons, including increasing fears that public borrowing cannot be maintained.

Takaichi’s success in Japan has further strengthened worries that government officials could seek to stimulate the economy through higher borrowing and lower interest rates, and use inflation to erode the value of accumulated debt.

Financial Summary

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

Predictions that Takaichi will become a PM favoring economic stimulus has ignited a rush of positive investment that has pushed Japan’s benchmark index to a 5% gain, adding more than 2300 points to finish at 48,085.

Yet the Japanese yen is trending downward – it’s down almost 2% versus the dollar to 150.3 yen per dollar.

The incoming leader, set to be the first woman to lead Japan in the coming weeks, is a long-time admirer of Thatcher. But although her social policies are right-leaning regarding social issues, she adopts a different strategy to fiscal policy, and supports a revival of government spending and loose monetary policy.

Consequently, she’s expected to persist with the country’s drive to boost economic growth though fiscal spending and lower interest rates, which would lead to increased price pressures and greater borrowing.

Thus the weaker yen, as markets predict fewer interest rates hikes by Japanese authorities compared to earlier expectations.

Japan’s government bond values have declined this session, lifting the return on long-term Japanese bonds approaching peak levels, on expectations of more government loans and more persistent inflation.

Traders will be calculating to what extent the new leader’s plans will mirror the Abenomics strategy advocated by previous leader Abe.

One analyst commented:

Unlike in late 2024, she has not engaged from promoting the three-arrow strategy during the party election, but most know her fundamental position and her appreciation of Abe’s three-arrow philosophy.

Traders may therefore move to obtain clarity on her policies, and how much impact she could be in directing the BoJ’s policy thinking, given the October BoJ meeting is viewed as a potential turning point with a quarter-point increase seen as a real possibility...

Market Agenda

• 8.30am BST: Eurozone construction PMI for last month
• 9.30am BST: British construction figures for the last month
• 6.30pm BST: BOE chief Bailey to deliver address at a financial forum 2025