Investor Sentiment to Japan's Ruling Party Vote
Currency strategists at major financial institutions have exited their recommendations to hold a long position on the Japanese yen after the country’s ruling party chose Takaichi as the new head.
In a report named “Getting out of the yen,” a global head of FX research commented:
Our strategy was bullish on the yen within our portfolio but have now exited due to the party leadership vote. Takaichi’s unforeseen success brings back significant doubt concerning Japanese economic goals and the expected date of interest rate increases by the Bank of Japan.
Analysts concur that inflation is a problem in Japan, but uncertainty is now going up again regarding how it will be addressed.
The expert further cautioned evidence of political control within Japan (where state authorities influence monetary policy decisions) are a tail risk.
Gold Approaches the $4,000 Mark
The gold price are reaching new all-time peaks, again, in its strongest year since 1979.
The current price of gold has surged by 1% or more this morning to $3,944 per ounce, nearing the $4,000 per ounce level.
This means gold’s value has jumped by 50% from the beginning of the year, likely to achieve its best annual gains in over 45 years.
The metal has risen in recent months because of various drivers, including increasing fears that public borrowing are unsustainable.
The new leader’s victory in the Japanese election has further strengthened concerns that politicians will attempt to boost output through higher borrowing and cheaper credit, and use inflation to diminish the worth of new borrowings.
Market Overview
Japan’s stock market has jumped to a record high today, while the yen is plunging, after the chief role of the LDP was unexpectedly secured by spending advocate Sanae Takaichi.
Forecasts that Takaichi is likely to be a PM favoring economic stimulus has triggered a surge of optimistic trading that has pushed Japan’s benchmark index to a 5% gain, as it gained 2315 points to close at 48,085.
However, the currency is heading the opposite way – it dropped almost 2% versus the dollar at 150.3¥/$.
Takaichi, who should become the nation’s initial woman PM soon, is a long-time admirer of Margaret Thatcher. However, while her social policies are right-leaning in social matters, the new leader takes an un-Thatcherite approach to fiscal policy, and promotes higher state investment and accommodative central bank measures.
As such, analysts anticipate to persist with the country’s drive to boost economic growth through public investment and lower interest rates, which would lead to higher inflation and increased borrowing.
Thus the falling currency, as markets predict less monetary tightening by Japanese authorities relative to previous forecasts.
Japan’s government bond values are also down today, lifting the interest rate on long-term Japanese bonds near to record highs, because of predictions of more government loans and lasting price increases.
Traders will be calculating the degree to which Takaichi’s policies will resemble the Abenomics strategy pushed by ex-prime minister Shinzo Abe.
A market expert noted:
Different from previous comments, the leader has avoided from talking up Abenomics in this LDP leadership campaign, but experts understand her underlying stance and her approval of Abe’s Three Arrows approach.
Investors might thus seek to obtain clarity on her policies, and how much impact she might become in shaping the BoJ’s policy thinking, given the October BoJ meeting is considered a “live” affair with a quarter-point increase considered likely...
Today’s Schedule
- 8.30am BST: Eurozone construction PMI for the previous month
- 9:30 AM UK time: UK construction PMI for September
- 6.30pm BST: BOE chief Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025
