Yen Plummets as Nikkei Rises to All-Time High Following Sanae Takaichi’s Leadership Win; Gold Tops $4,000 Level

Financial Market Response following the Japanese Ruling Party Vote

Currency strategists from major financial institutions have reportedly terminated their positions for holding a long position on Japan’s currency after Japan’s leading political group selected Sanae Takaichi as its head.

In commentary named “Getting out of the yen,” a global head for foreign exchange stated:

We went long JPY within our portfolio but have closed this after the party leadership vote. Sanae Takaichi’s surprise victory reintroduces renewed unpredictability regarding Japan’s policy priorities as well as the schedule for interest rate increases by the Bank of Japan.

Experts agree that inflationary pressures exist within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The strategist additionally noted indicators of government influence within Japan (where state authorities influence the BoJ’s moves) are a tail risk.

Gold Closes In On the $4,000 Level

Bullion values are hitting fresh record highs, again, in its top-performing period in over four decades.

The immediate value of the precious metal has climbed more than 1 percent this morning at $3,944 an ounce, nearing the $4,000 threshold.

This indicates bullion prices has surged half again from the beginning of the year, heading for its top annual returns since the late 1970s.

Gold has been driven higher this year due to multiple reasons, including growing worries that national debt levels are unsustainable.

Sanae Takaichi’s success in Japan has further strengthened worries that politicians may try to stimulate the economy via increased debt and reduced rates, and use inflation to erode the value of the resulting debt.

Trading Update

Tokyo’s bourse has surged to a record high this morning, as the yen falls, following the top position of the governing party went unexpectedly to by spending advocate Sanae Takaichi.

Forecasts that Sanae Takaichi will become a leader supporting government spending has ignited a rush of positive investment that has pushed the Nikkei 225 share index higher by five percent, rising by 2315 points to finish at 48,085.

But the yen is trending the opposite way – it dropped nearly two percent relative to the USD to 150.3 yen per dollar.

The incoming leader, set to be the first woman to lead Japan in the coming weeks, is a known fan of Thatcher. Yet even though her social policies are right-leaning regarding social issues, she follows a contrasting path in economic policy, and supports higher state investment and easy money policies.

As such, she’s expected to continue Japan’s push to spur activity through public investment and cheap credit, which would lead to higher inflation and increased borrowing.

Thus the weaker yen, as markets predict less monetary tightening by Japanese authorities than before.

Japanese long-term bond prices have also fallen today, pushing up the interest rate on long-term Japanese bonds approaching record highs, due to forecasts of higher borrowing and sustained inflationary pressures.

Investors will be calculating how closely the new leader’s proposals will echo the Abenomics strategy advocated by ex-prime minister Shinzo Abe.

A brokerage head explained:

In contrast to last year, she has not engaged from highlighting the three-arrow strategy during the party election, but many are aware her underlying stance and her approval of the former PM’s three-arrow strategy.

Investors might thus seek to obtain clarity regarding her stance, and how much impact she might become in directing the central bank’s decisions, given the October BoJ meeting is viewed as a key event and a 25bp hike seen as a real possibility...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for the previous month
• 9.30am BST: UK building sector data for the last month
• 18:30 BST: BOE chief Bailey to deliver address at an investment conference 2025