Yen Plummets as Nikkei Rises to Record High After Sanae Takaichi's Party Election Success; Gold Tops $4,000 Mark

Financial Market Response to Japan's Political Shift

FX analysts from leading banks have reportedly terminated their positions for holding a bullish stance regarding Japan’s currency after Japan’s ruling party chose Sanae Takaichi to be its head.

In a report named “Getting out of the yen,” one lead strategist of FX research explained:

We went long JPY within our portfolio but are now getting out after the weekend’s election result. The unexpected win by Takaichi reintroduces renewed unpredictability regarding the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflationary pressures exist for Japan, but questions are mounting about the approach to managing it.

The strategist additionally noted indicators of government influence within Japan (in which politicians direct the BoJ’s moves) pose a potential danger.

Gold Approaches the $4,000 Mark

The gold price are hitting new all-time peaks, once more, in its top-performing period since 1979.

The current price of gold has surged more than 1 percent in recent trading to $3,944 per ounce, as it closes in on the $4,000 per ounce level.

This means gold’s value has increased half again since January 1st, heading for its best annual gains since the late 1970s.

The metal has risen this year by several factors, among them increasing fears that national debt levels may be unmanageable.

Sanae Takaichi’s success in the Japanese election will only have reinforced worries that politicians may try to stimulate the economy through higher borrowing and lower interest rates, and use inflation to erode the value of accumulated debt.

Trading Update

Japan’s stock market has rallied to unprecedented levels this morning, with the currency dropping, after the leadership of the country’s ruling party was unexpectedly secured by stimulus supporter Sanae Takaichi.

Expectations that Takaichi is likely to be a pro-stimulus prime minister has sparked a surge of optimistic trading that has pushed Japan’s benchmark index higher by five percent, adding more than 2300 points to close at 48,085 points.

Yet the Japanese yen is trending the opposite way – it has fallen about 2 percent against the US dollar reaching 150.3 against the greenback.

The incoming leader, who is expected to become the first woman to lead Japan later this month, has long admired of the former UK leader. Yet even though she is conservative regarding social issues, the new leader adopts a different strategy in economic policy, and supports increased public expenditure and easy money policies.

Therefore, analysts anticipate to continue the country’s drive to stimulate its economy though fiscal spending and reduced borrowing costs, likely resulting in higher inflation and more debt.

Thus the weaker yen, as markets predict less monetary tightening in Tokyo than before.

The nation’s debt securities have also fallen in Monday trading, pushing up the interest rate on long-term Japanese bonds near to all-time highs, on expectations of more government loans and more persistent inflation.

Traders are assessing the degree to which the new leader’s plans will resemble the Abenomics strategy pushed by former PM Shinzo Abe.

One analyst noted:

Unlike in late 2024, the leader has avoided from highlighting Abenomics in the recent vote, but most know her fundamental position and her support of the former PM’s Three Arrows approach.

Investors might thus seek to obtain clarity on that position, and how much impact she may be in forming the central bank’s decisions, with the Bank of Japan’s October session is viewed as a potential turning point and a rate rise seen as a real possibility...

Economic Calendar

• 08:30 British Summer Time: European construction data for the previous month
• 9:30 AM UK time: UK construction PMI for September
• 6:30 PM UK time: BOE chief Andrew Bailey to give keynote speech at a financial forum 2025