Japanese Yen Tumbles as Nikkei Jumps to Record High After Sanae Takaichi’s Election Victory; Gold Tops $4,000 Price Point

Financial Market Response following the Japanese Ruling Party Vote

Currency strategists at leading financial institutions have terminated their positions to hold an optimistic view regarding the yen after Japan’s ruling party elected Takaichi as the new leader.

In a report called “Exiting the yen,” a global head for currency analysis explained:

We held a long yen position in our FX Blueprint but have closed this following the party leadership vote. Takaichi’s unforeseen success creates significant doubt concerning Japan’s policy priorities and the expected date of BoJ monetary tightening.

Analysts concur that inflation is a problem in Japan, but questions are mounting on how it will be dealt with.

The expert additionally noted indicators of government influence in Japan (in which politicians direct the central bank’s actions) pose a potential danger.

Gold Approaches the $4,000 Threshold

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

The spot price of gold has surged more than 1 percent today to $3,944 per ounce, approaching the $4000/oz mark.

This indicates gold’s value has jumped by 50% from the beginning of the year, likely to achieve its best annual gains since the Iranian Revolution.

The metal has risen this year because of various drivers, such as growing worries that public borrowing may be unmanageable.

Takaichi’s success in the Japanese election is likely amplifying apprehensions that politicians could seek to secure growth by borrowing more and reduced rates, and rely on inflation to erode the value of accumulated debt.

Financial Summary

The Japanese equity market has rallied to unprecedented levels this morning, with the currency dropping, following the top position of the LDP went unexpectedly to by fiscal dove Sanae Takaichi.

Forecasts that the new leader will become a pro-stimulus prime minister has triggered a wave of enthusiastic buying that has pushed Japan’s benchmark index up by 5%, as it gained 2315 points to finish at 48,085.

But the yen is heading in the other direction – it has fallen about 2 percent versus the dollar to 150.3 yen per dollar.

The incoming leader, set to be Japan’s first female prime minister soon, has long admired of Thatcher. Yet even though she holds conservative views on social policy, she takes an un-Thatcherite approach on budget matters, and promotes increased public expenditure and easy money policies.

Therefore, she’s expected to maintain the country’s drive to spur activity though fiscal spending and lower interest rates, which would lead to higher inflation and greater borrowing.

Hence yen depreciation, as markets predict reduced rate increases in Tokyo than before.

Japanese long-term bond prices have declined today, lifting the interest rate on long-term Japanese bonds approaching all-time highs, due to forecasts of increased debt issuance and more persistent inflation.

The markets are evaluating to what extent Takaichi’s plans will echo the “Abenomics” programme implemented by ex-prime minister Shinzo Abe.

A brokerage head commented:

Unlike in late 2024, the leader has avoided from talking up the Abenomics program in this LDP leadership campaign, but most know her core beliefs and her appreciation of the former PM’s three-pillar approach.

Investors might thus seek to obtain clarity on her policies, plus the degree of influence she could be in directing the BoJ’s policy thinking, ahead of the BoJ’s next meeting is considered a key event and a rate rise potentially on the table...

Today’s Schedule

• 08:30 British Summer Time: Eurozone construction PMI for the previous month
• 09:30 BST: British construction figures for September
• 18:30 BST: Bank of England governor the BOE’s Andrew Bailey to deliver address at an investment conference this year