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Investor Sentiment to Japan's Leadership Election

Currency strategists at leading banks have closed their recommendations for holding a long position regarding the yen following Japan’s ruling party selected Takaichi to be its head.

In a report titled “Getting out of the yen,” a global head of FX research explained:

We held a long yen position within our portfolio but are now getting out due to the weekend’s election result. Sanae Takaichi’s surprise victory reintroduces renewed unpredictability around Japan’s policy priorities and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflation is a problem within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The strategist additionally noted indicators of government influence in Japan (where state authorities influence monetary policy decisions) represent a downside risk.

Gold Nears the $4,000/oz Mark

Gold prices are hitting new all-time peaks, today, in its strongest year in over four decades.

The spot price of the precious metal has surged by 1% or more today at $3,944 an ounce, approaching the $4000/oz mark.

This indicates gold’s value has jumped fifty percent since January 1st, on track for its top annual returns since the late 1970s.

Bullion has advanced throughout the year due to multiple reasons, including rising concerns that national debt levels may be unmanageable.

Sanae Takaichi’s success in the party vote has further strengthened worries that leaders may try to stimulate the economy via increased debt and cheaper credit, and depend on rising prices to erode the value of accumulated debt.

Trading Update

Tokyo’s bourse has jumped to an all-time peak in Monday trading, with the currency dropping, after the leadership of the country’s ruling party was surprisingly won by spending advocate Sanae Takaichi.

Expectations that Sanae Takaichi will become a PM favoring economic stimulus has ignited a rush of positive investment that has pushed the Nikkei 225 share index to a 5% gain, rising by more than 2300 points ending at just over 48,000.

However, the currency is trending the opposite way – it’s down almost 2% against the US dollar to 150.3 yen per dollar.

Takaichi, who should become the first woman to lead Japan soon, has long admired of the former UK leader. Yet even though she holds conservative views on social policy, the new leader adopts a different strategy on budget matters, and promotes a revival of government spending and easy money policies.

Consequently, she’s expected to continue the national effort to stimulate its economy via government outlays and reduced borrowing costs, likely resulting in higher inflation and increased borrowing.

Hence yen depreciation, as markets predict less monetary tightening from the Bank of Japan than before.

The nation’s debt securities are also down today, driving higher the interest rate on long-term Japanese bonds approaching record highs, on expectations of increased debt issuance and more persistent inflation.

The markets are evaluating how closely Takaichi’s proposals will resemble the Abenomics strategy advocated by ex-prime minister Shinzo Abe.

A market expert explained:

Unlike in late 2024, she has not engaged from highlighting Abenomics in this LDP leadership campaign, but many are aware her underlying stance and her appreciation of Shinzo Abe’s Three Arrows strategy.

Investors might thus seek to gain understanding regarding her stance, as well as exactly how influential she may be in directing monetary policy, given the October BoJ meeting is considered a key event and a 25bp hike seen as a real possibility...

Today’s Schedule

• 8:30 AM UK time: Euro area building activity for September
• 09:30 BST: British construction figures for September
• 6:30 PM UK time: Bank of England governor Andrew Bailey to give keynote speech at a financial forum this year