🔗 Share this article

Financial Market Response following the Japanese Leadership Election

FX analysts at leading banks have reportedly closed their positions for holding a long position on the yen following the country’s ruling party elected Takaichi as its chief.

In commentary called “Getting out of the yen,” one global head of FX research stated:

Our strategy was bullish on the yen as part of our strategy but have now exited after the party leadership vote. Takaichi’s unforeseen success reintroduces significant doubt regarding the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

There is agreement that inflation is a problem for Japan, but doubts are resurfacing on how it will be dealt with.

The analyst further cautioned that signs of fiscal dominance in Japan (in which politicians direct the BoJ’s moves) pose a potential danger.

Gold Nears $4,000 per ounce Level

Gold prices are reaching unprecedented levels, again, in its strongest year in over four decades.

The immediate value of gold has surged by over 1% this morning reaching $3,944/oz, approaching the $4000/oz mark.

This means gold’s value has jumped half again since the start of January, likely to achieve its best annual gains in over 45 years.

Bullion has advanced in recent months due to multiple reasons, including increasing fears that national debt levels cannot be maintained.

Sanae Takaichi’s victory in the party vote will only have reinforced apprehensions that politicians will attempt to stimulate the economy through higher borrowing and reduced rates, and depend on rising prices to erode the value of accumulated debt.

Financial Summary

Tokyo’s bourse has jumped to a record high today, as the yen falls, after the top position of the country’s ruling party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that the new leader is likely to be a leader supporting government spending has triggered a surge of optimistic trading lifting Japan’s benchmark index to a 5% gain, rising by more than 2300 points ending at 48,085 points.

But the yen is very much moving in the other direction – it dropped nearly two percent versus the dollar to 150.3 yen per dollar.

Sanae Takaichi, set to be Japan’s first female prime minister soon, has long admired of Thatcher. However, while her social policies are right-leaning in social matters, she takes an un-Thatcherite approach on budget matters, and has advocate increased public expenditure and loose monetary policy.

Consequently, analysts anticipate to continue Japan’s push to spur activity through public investment and reduced borrowing costs, which would lead to rising inflation and increased borrowing.

Thus yen depreciation, as investors anticipate reduced rate increases by Japanese authorities than before.

Japan’s government bond values have declined this session, lifting the return on thirty-year bonds close to all-time highs, because of predictions of more government loans and lasting price increases.

Traders are assessing how closely the new leader’s plans will resemble the policies of Shinzo Abe advocated by ex-prime minister Shinzo Abe.

A market expert commented:

In contrast to last year, she has not engaged from highlighting the three-arrow strategy during the party election, but experts understand her fundamental position and her approval of the former PM’s three-arrow approach.

Markets could then push to gain understanding regarding her stance, and how much impact she might become in shaping the central bank’s decisions, given the October BoJ meeting is considered a potential turning point and a 25bp hike seen as a real possibility...

Economic Calendar

• 8.30am BST: Eurozone construction PMI for last month
• 09:30 BST: UK building sector data for September
• 6.30pm BST: Bank of England governor Andrew Bailey to give keynote speech at an investment conference this year