Japanese Currency Falls while Nikkei Jumps to Record High Following Sanae Takaichi's Election Victory; Gold Tops $4,000 Level

Investor Sentiment to Japan's Leadership Election

FX analysts at prominent investment firms have exited their strategies to hold a bullish stance on Japan’s currency following the country’s ruling party elected Sanae Takaichi as its leader.

In a report named “Getting out of the yen,” one lead strategist for currency analysis commented:

We held a long yen position within our portfolio but have now exited after the weekend’s election result. Takaichi’s unforeseen success reintroduces renewed unpredictability regarding the nation’s policy focus and the timing of interest rate increases by the Bank of Japan.

Analysts concur that inflationary pressures exist in Japan, but doubts are resurfacing regarding how it will be addressed.

The expert also warned that signs of fiscal dominance in Japan (where the government controls the central bank’s actions) represent a downside risk.

Gold Nears the $4,000/oz Threshold

The gold price are reaching unprecedented levels, again, during its best performance since the late 1970s.

The immediate value of bullion has surged more than 1 percent this morning reaching $3,944/oz, as it closes in on the $4,000 per ounce level.

This indicates bullion prices has increased half again since the start of January, heading for its strongest yearly performance in over 45 years.

The metal has risen this year because of various drivers, such as rising concerns that government debts cannot be maintained.

Takaichi’s victory in the Japanese election has further strengthened apprehensions that leaders will attempt to boost output via increased debt and cheaper credit, and depend on rising prices to diminish the worth of the resulting debt.

Trading Update

Japan’s stock market has rallied to unprecedented levels in Monday trading, as the yen falls, after the leadership of the country’s ruling party was unexpectedly secured by fiscal dove Sanae Takaichi.

Predictions that Takaichi is likely to be a PM favoring economic stimulus has sparked a wave of enthusiastic buying lifting Japan’s benchmark index to a 5% gain, rising by over 2300 points to close at 48,085 points.

However, the currency is very much moving the opposite way – it’s down almost 2% relative to the USD reaching 150.3 against the greenback.

The incoming leader, set to be Japan’s first female prime minister later this month, is a known fan of the former UK leader. However, while she holds conservative views on social policy, the new leader follows a contrasting path in economic policy, and has advocate a revival of government spending and loose monetary policy.

As such, analysts anticipate to continue Japan’s push to spur activity through public investment and lower interest rates, likely resulting in higher inflation and greater borrowing.

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

Japanese long-term bond prices have declined this session, lifting the interest rate on thirty-year bonds close to record highs, on expectations of more government loans and sustained inflationary pressures.

Investors will be calculating how closely the new leader’s plans will resemble the policies of Shinzo Abe advocated by ex-prime minister Abe.

A market expert noted:

In contrast to last year, Takaichi has refrained from highlighting Abenomics in the recent vote, but many are aware her fundamental position and her support of the former PM’s Three Arrows strategy.

Markets could then push for more information on her policies, as well as exactly how influential she could be in forming the central bank’s decisions, with the Bank of Japan’s October session is seen as a key event with a quarter-point increase potentially on the table...

Market Agenda

• 8:30 AM UK time: Eurozone construction PMI for September
• 9.30am BST: UK construction PMI for the last month
• 18:30 BST: BOE chief Andrew Bailey to deliver address at a financial forum 2025