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Investor Sentiment following Japan's Political Shift

FX analysts at prominent investment firms have exited their positions for holding a long position regarding Japan’s currency following the country’s leading political group chose Sanae Takaichi as the new leader.

In a report titled “Exiting the yen,” a lead strategist for foreign exchange explained:

We held a long yen position within our portfolio but have closed this due to the LDP election outcome. Takaichi’s unforeseen success reintroduces too much uncertainty around Japan’s policy priorities and the timing of BoJ monetary tightening.

Experts agree that rising prices are an issue in Japan, but questions are mounting regarding how it will be addressed.

The expert further cautioned indicators of government influence across Japan (in which politicians direct the BoJ’s moves) are a tail risk.

Gold Approaches $4,000 per ounce Mark

The gold price are reaching unprecedented levels, once more, in its strongest year since 1979.

The immediate value of gold has climbed by over 1% this morning to $3,944 per ounce, as it closes in on the $4,000 per ounce level.

This means gold’s value has surged by 50% from the beginning of the year, on track for its best annual gains since the late 1970s.

The metal has risen this year by several factors, such as growing worries that national debt levels are unsustainable.

Sanae Takaichi’s victory in Japan will only have reinforced worries that politicians may try to stimulate the economy by borrowing more and reduced rates, and use inflation to diminish the worth of the resulting debt.

Financial Summary

Japan’s stock market has rallied to a record high in Monday trading, as the yen falls, following the leadership of the country’s ruling party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that Takaichi will be a pro-stimulus prime minister has triggered a surge of optimistic trading driving the Tokyo stock index higher by five percent, adding over 2300 points to finish at just over 48,000.

But the yen is heading downward – it has fallen about 2 percent relative to the USD at 150.3¥/$.

The incoming leader, who is expected to become Japan’s first female prime minister soon, is a long-time admirer of Thatcher. But although she is conservative in social matters, the new leader takes an un-Thatcherite approach to fiscal policy, and supports a revival of government spending and accommodative central bank measures.

As such, analysts anticipate to persist with the national effort to stimulate its economy through public investment and reduced borrowing costs, likely resulting in rising inflation and more debt.

As a result yen depreciation, as investors anticipate less monetary tightening from the Bank of Japan relative to previous forecasts.

Japan’s government bond values have declined this session, pushing up the yield on thirty-year bonds close to record highs, due to forecasts of increased debt issuance and lasting price increases.

Investors are assessing to what extent the new leader’s policies will resemble the “Abenomics” programme implemented by former PM Shinzo Abe.

A brokerage head explained:

In contrast to last year, the leader has avoided from highlighting the Abenomics program in the recent vote, but many are aware her core beliefs and her appreciation of Shinzo Abe’s three-pillar philosophy.

Investors might thus seek to obtain clarity regarding her stance, as well as exactly how influential she may be in directing monetary policy, ahead of the BoJ’s next meeting is viewed as a key event with a quarter-point increase considered likely...

Market Agenda

• 08:30 British Summer Time: Eurozone construction PMI for the previous month
• 9:30 AM UK time: UK construction PMI for September
• 6.30pm BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025