🔗 Share this article

Market Reactions to the Japanese Political Shift

FX analysts at major financial institutions have reportedly exited their previous recommendations for holding a long position on the Japanese yen after Japan’s governing party elected Sanae Takaichi as its leader.

In a report titled “Leaving yen positions,” a chief of FX research commented:

We went long JPY as part of our strategy but have closed this due to the weekend’s election result. The unexpected win by Takaichi brings back significant doubt concerning Japanese economic goals and the timing of BoJ monetary tightening.

Analysts concur that rising prices are an issue for Japan, but questions are mounting on how it will be dealt with.

The strategist further cautioned indicators of government influence within Japan (in which politicians direct the BoJ’s moves) represent a downside risk.

Gold Approaches the $4,000 Mark

Bullion values are achieving fresh record highs, today, during its best performance in over four decades.

The current price of bullion has climbed more than 1 percent in recent trading at $3,944 an ounce, nearing the $4,000 threshold.

This shows bullion prices has jumped by 50% from the beginning of the year, on track for its strongest yearly performance since the Iranian Revolution.

Bullion has advanced in recent months due to multiple reasons, including growing worries that national debt levels may be unmanageable.

Sanae Takaichi’s success in Japan is likely amplifying concerns that government officials may try to secure growth via increased debt and cheaper credit, and depend on rising prices to erode the value of the resulting debt.

Trading Update

The Japanese equity market has jumped to a record high today, with the currency dropping, after the chief role of the governing party went unexpectedly to by fiscal dove Sanae Takaichi.

Forecasts that Takaichi will be a leader supporting government spending has ignited a wave of enthusiastic buying lifting Japan’s benchmark index to a 5% gain, as it gained over 2300 points to close at 48,085 points.

Yet the Japanese yen is very much moving downward – it dropped nearly two percent against the US dollar reaching 150.3 against the greenback.

Takaichi, set to be Japan’s first female prime minister later this month, is a long-time admirer of the former UK leader. Yet even though her social policies are right-leaning in social matters, she takes an un-Thatcherite approach to fiscal policy, and has advocate higher state investment and easy money policies.

As such, markets predict to continue the country’s drive to stimulate its economy though fiscal spending and reduced borrowing costs, potentially causing increased price pressures and more debt.

Hence the weaker yen, with traders expecting less monetary tightening by Japanese authorities than before.

Japan’s government bond values have also fallen today, lifting the interest rate on its 30-year debt near to peak levels, because of predictions of increased debt issuance and more persistent inflation.

Investors are assessing the degree to which Sanae Takaichi’s plans will resemble the Abenomics strategy implemented by previous leader Shinzo Abe.

A brokerage head commented:

Unlike in late 2024, she has not engaged from promoting the Abenomics program during the party election, but experts understand her core beliefs and her approval of the former PM’s Three Arrows philosophy.

Investors might thus seek for more information on that position, plus the degree of influence she might become in directing the BoJ’s policy thinking, given the October BoJ meeting is seen as a potential turning point with a quarter-point increase considered likely...

Economic Calendar

• 08:30 British Summer Time: European construction data for September
• 9:30 AM UK time: UK building sector data for the last month
• 6.30pm BST: BOE chief Andrew Bailey to deliver address at a financial forum 2025