Yen Plummets as Nikkei Soars to Peak Following Takaichi's Election Victory; Gold Nears $4,000 Mark

Investor Sentiment to Japan's Leadership Election

FX analysts at prominent banks have closed their strategies for holding a bullish stance on Japan’s currency following Japan’s ruling party elected Sanae Takaichi as its chief.

In commentary called “Getting out of the yen,” one chief for foreign exchange stated:

We held a long yen position in our FX Blueprint but are now getting out after the weekend’s election result. The unexpected win by Takaichi reintroduces significant doubt around Japan’s policy priorities as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

There is agreement that rising prices are an issue within the Japanese economy, but doubts are resurfacing on how it will be dealt with.

The expert additionally noted indicators of government influence in Japan (where state authorities influence the BoJ’s moves) are a tail risk.

Gold Closes In On the $4,000/oz Threshold

Bullion values are achieving new all-time peaks, today, in its top-performing period since 1979.

The current price of bullion has jumped by 1% or more in recent trading at $3,944 an ounce, approaching the $4,000 per ounce level.

This indicates the gold price has increased half again since the start of January, on track for its strongest yearly performance since the late 1970s.

Gold has been driven higher in recent months by several factors, such as increasing fears that government debts are unsustainable.

Sanae Takaichi’s victory in the Japanese election will only have reinforced concerns that politicians will attempt to boost output via increased debt and reduced rates, and depend on rising prices to diminish the worth of new borrowings.

Trading Update

The Japanese equity market has rallied to unprecedented levels in Monday trading, as the yen falls, following the chief role of the governing party was surprisingly won by spending advocate Sanae Takaichi.

Expectations that Sanae Takaichi is likely to be a leader supporting government spending has ignited a wave of enthusiastic buying lifting Japan’s benchmark index up by 5%, rising by 2315 points to finish at 48,085.

However, the currency is very much moving in the other direction – it’s down almost 2% relative to the USD 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 Margaret Thatcher. Yet even though her social policies are right-leaning in social matters, Takaichi adopts a different strategy to fiscal policy, and promotes a revival of government spending and easy money policies.

Therefore, markets predict to maintain the national effort to boost economic growth via government outlays and cheap credit, which would lead to rising inflation and more debt.

Thus the weaker yen, as markets predict less monetary tightening in Tokyo relative to previous forecasts.

Japan’s government bond values have also fallen today, driving higher the return on thirty-year bonds near to peak levels, due to forecasts of more government loans and lasting price increases.

The markets are assessing to what extent Takaichi’s policies will mirror the “Abenomics” programme pushed by ex-prime minister Shinzo Abe.

A market expert explained:

Different from previous comments, Takaichi has refrained from talking up the Abenomics program in this LDP leadership campaign, but many are aware her underlying stance and her approval of Abe’s three-pillar strategy.

Traders may therefore move to gain understanding on that position, as well as exactly how influential she may be in forming the central bank’s decisions, given the October BoJ meeting is viewed as a potential turning point and a 25bp hike seen as a real possibility...

Market Agenda

• 08:30 British Summer Time: Eurozone construction PMI for last month
• 09:30 BST: UK construction PMI for September
• 6.30pm BST: BOE chief Bailey to deliver address at an investment conference 2025