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Market Reactions to the Japanese Leadership Election

FX analysts at major investment firms have reportedly exited their positions for holding a bullish stance regarding the yen following the country’s ruling party elected Takaichi as its leader.

In commentary named “Leaving yen positions,” one lead strategist of FX research explained:

We held a long yen position within our portfolio but have closed this after the LDP election outcome. The unexpected win by Takaichi reintroduces renewed unpredictability concerning Japanese economic goals and the expected date of BoJ monetary tightening.

Analysts concur that inflationary pressures exist in Japan, but doubts are resurfacing about the approach to managing it.

The expert additionally noted evidence of political control across Japan (where the government controls the central bank’s actions) pose a potential danger.

Gold Nears the $4,000/oz Level

The gold price are reaching fresh record highs, today, in its strongest year since 1979.

The current price of gold has climbed more than 1 percent this morning at $3,944 an ounce, as it closes in on the $4,000 threshold.

This shows bullion prices has jumped fifty percent since January 1st, likely to achieve its strongest yearly performance in over 45 years.

Gold has been driven higher this year because of various drivers, including increasing fears that national debt levels are unsustainable.

The new leader’s success in the Japanese election is likely amplifying apprehensions that leaders could seek to stimulate the economy by borrowing more and reduced rates, and use inflation to erode the value of new borrowings.

Financial Summary

Tokyo’s bourse has rallied to a record high today, as the yen falls, after the leadership of the LDP was surprisingly won by stimulus supporter Sanae Takaichi.

Expectations that the new leader is likely to be a pro-stimulus prime minister has ignited a wave of enthusiastic buying driving the Nikkei 225 share index to a 5% gain, adding over 2300 points ending at 48,085.

However, the currency is heading the opposite way – it dropped about 2 percent versus the dollar at 150.3¥/$.

The incoming leader, who should become the first woman to lead Japan soon, is a known fan of Thatcher. Yet even though she holds conservative views in social matters, she takes an un-Thatcherite approach on budget matters, and supports increased public expenditure and accommodative central bank measures.

As such, markets predict to maintain Japan’s push to spur activity via government outlays and reduced borrowing costs, likely resulting in higher inflation and more debt.

Thus the weaker yen, with traders expecting reduced rate increases from the Bank of Japan relative to previous forecasts.

Japan’s government bond values have declined today, lifting the yield on long-term Japanese bonds near to record highs, because of predictions of higher borrowing and sustained inflationary pressures.

The markets will be calculating the degree to which Takaichi’s policies will mirror the “Abenomics” programme pushed by former PM Abe.

A brokerage head explained:

Different from previous comments, Takaichi has refrained from talking up Abenomics in this LDP leadership campaign, but most know her fundamental position and her approval of Abe’s three-pillar approach.

Traders may therefore move for more information on her policies, and how much impact she might become in shaping the central bank’s decisions, with the Bank of Japan’s October session is seen as a “live” affair and a 25bp hike seen as a real possibility...

Today’s Schedule

• 8:30 AM UK time: European construction data for last month
• 09:30 BST: UK building sector data for September
• 6:30 PM UK time: Central bank head Andrew Bailey to give keynote speech at an investment conference 2025