Japanese Currency Falls as Nikkei Soars to Peak After Takaichi's Election Victory; Gold Nears $4,000 Level

Financial Market Response to Japan's Political Shift

FX analysts at prominent financial institutions have reportedly terminated their positions for holding an optimistic view regarding the Japanese yen after the country’s leading political group chose Takaichi as the new chief.

In a report called “Exiting the yen,” one chief for foreign exchange stated:

Our strategy was bullish on the yen as part of our strategy but are now getting out following the LDP election outcome. Takaichi’s unforeseen success brings back too much uncertainty concerning the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Experts agree that rising prices are an issue within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The expert also warned evidence of political control within Japan (in which politicians direct the BoJ’s moves) pose a potential danger.

Gold Nears the $4,000 Mark

Bullion values are reaching unprecedented levels, today, in its strongest year since the late 1970s.

The current price of bullion has surged by over 1% this morning at $3,944 an ounce, approaching the $4000/oz mark.

This shows bullion prices has jumped by 50% since January 1st, heading for its top annual returns in over 45 years.

Gold has been driven higher throughout the year due to multiple reasons, including increasing fears that public borrowing cannot be maintained.

The new leader’s election win in Japan is likely amplifying apprehensions that politicians will attempt to boost output via increased debt and lower interest rates, and rely on inflation to erode the value of new borrowings.

Trading Update

The Japanese equity market has jumped to unprecedented levels this morning, while the yen is plunging, following the leadership of the governing party was unexpectedly secured by fiscal dove Sanae Takaichi.

Expectations that the new leader is likely to be a leader supporting government spending has triggered a surge of optimistic trading lifting the Nikkei 225 share index higher by five percent, adding over 2300 points to finish at 48,085 points.

Yet the Japanese yen is very much moving downward – it’s down nearly two percent against the US dollar to 150.3 yen per dollar.

The incoming leader, set to be Japan’s first female prime minister soon, is a long-time admirer of the former UK leader. But although she holds conservative views in social matters, she adopts a different strategy in economic policy, and promotes increased public expenditure and accommodative central bank measures.

Therefore, analysts anticipate to persist with Japan’s push to spur activity through public investment and cheap credit, which would lead to higher inflation and greater borrowing.

Thus the falling currency, with traders expecting less monetary tightening in Tokyo compared to earlier expectations.

Japan’s government bond values have also fallen today, pushing up the interest rate on long-term Japanese bonds near to record highs, due to forecasts of higher borrowing and lasting price increases.

The markets are evaluating the degree to which Takaichi’s proposals will mirror the policies of Shinzo Abe pushed by former PM Shinzo Abe.

One analyst explained:

Different from previous comments, she has not engaged from highlighting Abenomics in this LDP leadership campaign, but most know her core beliefs and her support of Abe’s three-pillar approach.

Investors might thus seek to obtain clarity regarding her stance, and how much impact she might become in directing the central bank’s decisions, ahead of the BoJ’s next meeting is considered a “live” affair with a quarter-point increase considered likely...

Today’s Schedule

• 8.30am BST: European construction data for September
• 9:30 AM UK time: UK construction PMI for the last month
• 18:30 BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025