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Investor Sentiment following the Japanese Ruling Party Vote

Foreign exchange experts at prominent investment firms have exited their previous recommendations for holding a bullish stance regarding the Japanese yen following Japan’s leading political group selected Takaichi to be its leader.

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

We went long JPY within our portfolio but are now getting out due to the LDP election outcome. Takaichi’s unforeseen success brings back too much uncertainty concerning the nation’s policy focus and the expected date of interest rate increases by the Bank of Japan.

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

The analyst further cautioned indicators of government influence in Japan (where the government controls monetary policy decisions) are a tail risk.

Gold Nears the $4,000/oz Level

The gold price are reaching new all-time peaks, again, in its top-performing period in over four decades.

The immediate value of gold has surged by 1% or more today reaching $3,944/oz, nearing the $4,000 per ounce level.

This means gold’s value has jumped fifty percent since the start of January, heading for its best annual gains since the late 1970s.

Bullion has advanced in recent months due to multiple reasons, among them growing worries that government debts are unsustainable.

The new leader’s election win in the Japanese election will only have reinforced concerns that leaders may try to stimulate the economy via increased debt and reduced rates, and depend on rising prices to erode the value of new borrowings.

Market Overview

Tokyo’s bourse has surged to an all-time peak today, as the yen falls, following the top position of the LDP was unexpectedly secured by fiscal dove Sanae Takaichi.

Predictions that Sanae Takaichi will become a leader supporting government spending has ignited a rush of positive investment driving the Tokyo stock index to a 5% gain, rising by over 2300 points to close at 48,085.

However, the currency is very much moving downward – it’s down about 2 percent versus the dollar to 150.3 yen per dollar.

The incoming leader, set to be the nation’s initial woman PM soon, has long admired of Margaret Thatcher. But although her social policies are right-leaning in social matters, Takaichi adopts a different strategy to fiscal policy, and has advocate increased public expenditure and easy money policies.

Therefore, analysts anticipate to maintain Japan’s push to spur activity though fiscal spending and lower interest rates, potentially causing increased price pressures and more debt.

Hence yen depreciation, with traders expecting fewer interest rates hikes from the Bank of Japan than before.

Japan’s government bond values have also fallen today, driving higher the yield on its 30-year debt close to peak levels, on expectations of more government loans and lasting price increases.

Traders are assessing to what extent Sanae Takaichi’s proposals will echo the policies of Shinzo Abe advocated by previous leader Shinzo Abe.

A market expert commented:

Unlike in late 2024, the leader has avoided from highlighting the Abenomics program in the recent vote, but experts understand her underlying stance and her appreciation of Abe’s three-pillar philosophy.

Investors might thus seek to obtain clarity on her policies, plus the degree of influence she may be in directing monetary policy, ahead of the BoJ’s next meeting is viewed as a potential turning point and a 25bp hike considered likely...

Market Agenda

• 08:30 British Summer Time: Eurozone construction PMI for September
• 9:30 AM UK time: UK building sector data for September
• 6.30pm BST: BOE chief the BOE’s Andrew Bailey to deliver address at a financial forum this year