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Investor Sentiment to Japan's Ruling Party Vote

Currency strategists from major investment firms have reportedly exited their previous recommendations for holding a bullish stance on the Japanese yen following Japan’s governing party selected Takaichi as its head.

In commentary called “Getting out of the yen,” one global head for foreign exchange explained:

We went long JPY within our portfolio but have now exited due to the party leadership vote. The unexpected win by Takaichi brings back significant doubt concerning Japanese economic goals and the timing of BoJ monetary tightening.

Analysts concur that inflationary pressures exist within the Japanese economy, but uncertainty is now going up again regarding how it will be addressed.

The expert further cautioned evidence of political control across Japan (where state authorities influence the BoJ’s moves) pose a potential danger.

Gold Nears $4,000 per ounce Level

Gold prices are hitting fresh record highs, once more, in its strongest year since 1979.

The immediate value of the precious metal has jumped more than 1 percent this morning at $3,944 an ounce, approaching the $4000/oz mark.

This means the gold price has surged fifty percent since the start of January, heading for its best annual gains since the Iranian Revolution.

The metal has risen throughout the year because of various drivers, such as rising concerns that national debt levels cannot be maintained.

The new leader’s success in the party vote will only have reinforced concerns that government officials will attempt to stimulate the economy through higher borrowing and lower interest rates, and depend on rising prices to diminish the worth of the resulting debt.

Market Overview

Japan’s stock market has jumped to an all-time peak today, while the yen is plunging, after the chief role of the country’s ruling party went unexpectedly to by fiscal dove Sanae Takaichi.

Predictions that Takaichi will become a pro-stimulus prime minister has ignited a rush of positive investment lifting Japan’s benchmark index higher by five percent, rising by over 2300 points ending at 48,085 points.

But the yen is trending the opposite way – it’s down nearly two percent relative to the USD at 150.3¥/$.

Sanae Takaichi, who is expected to become Japan’s first female prime minister soon, is a known fan of Margaret Thatcher. Yet even though she is conservative in social matters, she follows a contrasting path in economic policy, and supports a revival of government spending and accommodative central bank measures.

Therefore, she’s expected to persist with the country’s drive to boost economic growth though fiscal spending and cheap credit, potentially causing rising inflation and increased borrowing.

As a result the weaker yen, with traders expecting fewer interest rates hikes from the Bank of Japan than before.

Japanese long-term bond prices have also fallen in Monday trading, lifting the return on thirty-year bonds close to peak levels, due to forecasts of increased debt issuance and more persistent inflation.

Investors will be calculating to what extent Takaichi’s plans will resemble the Abenomics strategy implemented by ex-prime minister Shinzo Abe.

One analyst explained:

Unlike in late 2024, the leader has avoided from promoting Abenomics during the party election, but experts understand her fundamental position and her appreciation of the former PM’s three-pillar approach.

Markets could then push for more information on that position, plus the degree of influence she may be in directing the BoJ’s policy thinking, given the October BoJ meeting is seen as a key event and a rate rise considered likely...

Economic Calendar

• 08:30 British Summer Time: European construction data for the previous month
• 9:30 AM UK time: British construction figures for the last month
• 6:30 PM UK time: Bank of England governor Bailey to deliver address at Scotland’s Global Investment Summit this year