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Investor Sentiment to the Japanese Leadership Election

Currency strategists at prominent financial institutions have reportedly exited their previous positions to hold a bullish stance regarding Japan’s currency following Japan’s leading political group chose Sanae Takaichi as the new leader.

In a note called “Leaving yen positions,” one global head for foreign exchange commented:

We held a long yen position within our portfolio but are now getting out following the LDP election outcome. The unexpected win by Takaichi reintroduces significant doubt regarding Japanese economic goals as well as the schedule for BoJ monetary tightening.

There is agreement that rising prices are an issue within the Japanese economy, but questions are mounting about the approach to managing it.

The strategist also warned evidence of political control across Japan (where state authorities influence the central bank’s actions) represent a downside risk.

Gold Approaches the $4,000/oz Mark

Gold prices are achieving new all-time peaks, today, during its best performance since 1979.

The immediate value of gold has surged by over 1% in recent trading to $3,944 per ounce, as it closes in on the $4000/oz mark.

This means bullion prices has surged fifty percent since January 1st, likely to achieve its top annual returns since the Iranian Revolution.

The metal has risen throughout the year by several factors, including growing worries that government debts are unsustainable.

Takaichi’s victory in the Japanese election has further strengthened worries that leaders could seek to secure growth by borrowing more and reduced rates, and rely on inflation to diminish the worth of new borrowings.

Financial Summary

Tokyo’s bourse has jumped to an all-time peak in Monday trading, with the currency dropping, following the top position of the LDP was surprisingly won by spending advocate Sanae Takaichi.

Forecasts that the new leader will become a leader supporting government spending has triggered a wave of enthusiastic buying lifting the Tokyo stock index to a 5% gain, adding over 2300 points to finish at just over 48,000.

However, the currency is heading the opposite way – it has fallen almost 2% versus the dollar to 150.3 yen per dollar.

Sanae Takaichi, who should become the nation’s initial woman PM in the coming weeks, is a long-time admirer of the former UK leader. However, while she is conservative on social policy, Takaichi takes an un-Thatcherite approach in economic policy, and supports increased public expenditure and easy money policies.

Consequently, markets predict to persist with the country’s drive to boost economic growth through public investment and reduced borrowing costs, potentially causing higher inflation and more debt.

Hence the weaker yen, with traders expecting less monetary tightening in Tokyo than before.

Japanese long-term bond prices have also fallen this session, pushing up the yield on long-term Japanese bonds near to peak levels, due to forecasts of higher borrowing and lasting price increases.

Traders will be calculating the degree to which the new leader’s plans will resemble the policies of Shinzo Abe pushed by former PM Shinzo Abe.

One analyst noted:

Unlike in late 2024, the leader has avoided from highlighting Abenomics during the party election, but experts understand her core beliefs and her support of Abe’s three-arrow strategy.

Markets could then push to gain understanding regarding her stance, plus the degree of influence she may be in forming monetary policy, given the October BoJ meeting is considered a key event and a 25bp hike seen as a real possibility...

Market Agenda

• 8:30 AM UK time: European construction data for last month
• 09:30 BST: UK construction PMI for September
• 18:30 BST: Central bank head Andrew Bailey to deliver address at an investment conference 2025