🔗 Share this article

Market Reactions following Japan's Political Shift

Foreign exchange experts from major investment firms have reportedly closed their strategies to hold a bullish stance on Japan’s currency after the country’s leading political group chose Sanae Takaichi as its chief.

In commentary titled “Getting out of the yen,” one lead strategist for foreign exchange commented:

We went long JPY in our FX Blueprint but have now exited following the weekend’s election result. The unexpected win by Takaichi creates renewed unpredictability regarding Japan’s policy priorities and the timing of interest rate increases by the Bank of Japan.

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

The analyst also warned evidence of political control in Japan (where state authorities influence the central bank’s actions) are a tail risk.

Gold Nears the $4,000 Mark

Bullion values are achieving fresh record highs, again, in its strongest year since 1979.

The current price of the precious metal has climbed by over 1% this morning at $3,944 an ounce, approaching the $4000/oz mark.

This indicates the gold price has increased half again from the beginning of the year, on track for its best annual gains since the Iranian Revolution.

The metal has risen in recent months by several factors, such as increasing fears that government debts are unsustainable.

Takaichi’s election win in the party vote has further strengthened worries that politicians will attempt to boost output by borrowing more and cheaper credit, and use inflation to erode the value of the resulting debt.

Market Overview

The Japanese equity market has jumped to unprecedented levels today, as the yen falls, after the chief role of the governing party was unexpectedly secured by spending advocate Sanae Takaichi.

Predictions that the new leader is likely to be a PM favoring economic stimulus has sparked a surge of optimistic trading driving the Nikkei 225 share index up by 5%, rising by more than 2300 points to close at 48,085.

But the yen is very much moving in the other direction – it dropped nearly two percent relative to the USD to 150.3 yen per dollar.

Sanae Takaichi, who is expected to become the nation’s initial woman PM later this month, is a known fan of Thatcher. However, while she holds conservative views on social policy, the new leader follows a contrasting path on budget matters, and supports a revival of government spending and accommodative central bank measures.

Consequently, analysts anticipate to persist with Japan’s push to stimulate its economy through public investment and reduced borrowing costs, which would lead to increased price pressures and more debt.

As a result the falling currency, as investors anticipate less monetary tightening by Japanese authorities compared to earlier expectations.

Japan’s government bond values have declined today, lifting the interest rate on thirty-year bonds close to peak levels, because of predictions of higher borrowing and more persistent inflation.

The markets will be calculating to what extent Takaichi’s proposals will mirror the policies of Shinzo Abe pushed by former PM Shinzo Abe.

One analyst noted:

Different from previous comments, the leader has avoided from talking up Abenomics during the party election, but many are aware her core beliefs and her approval of the former PM’s Three Arrows strategy.

Markets could then push for more information on that position, plus the degree of influence she could be in shaping monetary policy, ahead of the BoJ’s next meeting is seen as a potential turning point with a quarter-point increase considered likely...

Economic Calendar

• 8:30 AM UK time: Eurozone construction PMI for last month
• 9:30 AM UK time: British construction figures for the last month
• 6:30 PM UK time: Central bank head Andrew Bailey to deliver address at an investment conference 2025