🔗 Share this article

Market Reactions to the Japanese Ruling Party Vote

Foreign exchange experts from prominent banks have terminated their recommendations for holding a long position regarding the Japanese yen following Japan’s governing party selected Takaichi to be its head.

In commentary called “Exiting the yen,” one chief for currency analysis commented:

We went long JPY within our portfolio but have now exited following the weekend’s election result. Sanae Takaichi’s surprise victory brings back too much uncertainty regarding Japan’s policy priorities and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that rising prices are an issue in Japan, but doubts are resurfacing regarding how it will be addressed.

The expert further cautioned that signs of fiscal dominance across Japan (in which politicians direct the central bank’s actions) pose a potential danger.

Gold Approaches the $4,000 Mark

Bullion values are hitting new all-time peaks, again, in its top-performing period since the late 1970s.

The immediate value of bullion has surged by 1% or more in recent trading at $3,944 an ounce, approaching the $4,000 per ounce level.

This shows the gold price has surged fifty percent since the start of January, likely to achieve its strongest yearly performance in over 45 years.

The metal has risen throughout the year because of various drivers, such as rising concerns that public borrowing are unsustainable.

The new leader’s victory in the party vote will only have reinforced concerns that government officials may try to stimulate the economy via increased debt and reduced rates, and depend on rising prices to diminish the worth of new borrowings.

Market Overview

Tokyo’s bourse has rallied to unprecedented levels in Monday trading, as the yen falls, after the chief role of the governing party was surprisingly won by stimulus supporter Sanae Takaichi.

Predictions that the new leader will be a PM favoring economic stimulus has ignited a rush of positive investment driving the Tokyo stock index higher by five percent, adding more than 2300 points to close at 48,085.

Yet the Japanese yen is trending the opposite way – it has fallen nearly two percent relative to the USD at 150.3¥/$.

Takaichi, who is expected to become the first woman to lead Japan in the coming weeks, has long admired of the former UK leader. But although her social policies are right-leaning regarding social issues, Takaichi takes an un-Thatcherite approach in economic policy, and supports increased public expenditure and loose monetary policy.

Therefore, markets predict to continue Japan’s push to spur activity through public investment and cheap credit, which would lead to increased price pressures and greater borrowing.

Thus yen depreciation, with traders expecting fewer interest rates hikes by Japanese authorities compared to earlier expectations.

Japanese long-term bond prices have declined in Monday trading, lifting the interest rate on its 30-year debt approaching peak levels, because of predictions of higher borrowing and lasting price increases.

The markets are assessing the degree to which the new leader’s plans will resemble the policies of Shinzo Abe advocated by ex-prime minister Shinzo Abe.

A market expert commented:

Different from previous comments, Takaichi has refrained from highlighting the three-arrow strategy in the recent vote, but most know her fundamental position and her approval of Abe’s three-pillar philosophy.

Markets could then push for more information 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 considered a key event and a rate rise seen as a real possibility...

Market Agenda

• 8:30 AM UK time: European construction data for September
• 09:30 BST: British construction figures for September
• 6:30 PM UK time: Bank of England governor the BOE’s Andrew Bailey to speak at a financial forum this year