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Yen Plummets as Nikkei Soars to Record High After Sanae Takaichi's Election Victory; Gold Tops $4,000 Level
Financial Market Response following the Japanese Ruling Party Vote
Currency strategists at major banks have terminated their strategies to hold a bullish stance regarding the yen following the country’s governing party chose Takaichi as its chief.
In commentary titled “Exiting the yen,” a chief for currency analysis stated:
Our strategy was bullish on the yen in our FX Blueprint but have now exited after the weekend’s election result. Sanae Takaichi’s surprise victory brings back significant doubt concerning the nation’s policy focus as well as the schedule for the BoJ [Bank of Japan] hiking cycle.
Analysts concur that rising prices are an issue in Japan, but doubts are resurfacing on how it will be dealt with.
The strategist further cautioned that signs of fiscal dominance in Japan (in which politicians direct the central bank’s actions) pose a potential danger.
Gold Nears $4,000 per ounce Mark
Bullion values are reaching fresh record highs, once more, in its top-performing period since the late 1970s.
The spot price of bullion has surged more than 1 percent in recent trading at $3,944 an ounce, as it closes in on the $4,000 per ounce level.
This indicates the gold price has increased half again since January 1st, heading for its strongest yearly performance since the Iranian Revolution.
The metal has risen throughout the year because of various drivers, among them growing worries that national debt levels are unsustainable.
Takaichi’s success in the party vote has further strengthened worries that leaders may try to secure growth by borrowing more and cheaper credit, and rely on inflation to reduce the real value of new borrowings.
Market Overview
Tokyo’s bourse has rallied to an all-time peak in Monday trading, while the yen is plunging, following the leadership of the LDP was unexpectedly secured by spending advocate Sanae Takaichi.
Expectations that Takaichi will be a PM favoring economic stimulus has triggered a rush of positive investment that has pushed the Tokyo stock index to a 5% gain, adding over 2300 points to close at 48,085 points.
But the yen is trending in the other direction – it has fallen nearly two percent against the US dollar to 150.3 yen per dollar.
Sanae Takaichi, who is expected to become Japan’s first female prime minister later this month, is a long-time admirer of Thatcher. But although her social policies are right-leaning in social matters, she takes an un-Thatcherite approach in economic policy, and promotes a revival of government spending and accommodative central bank measures.
As such, analysts anticipate to maintain the national effort to stimulate its economy via government outlays and lower interest rates, which would lead to increased price pressures and greater borrowing.
As a result yen depreciation, with traders expecting fewer interest rates hikes by Japanese authorities relative to previous forecasts.
Japan’s government bond values have also fallen in Monday trading, driving higher the interest rate on its 30-year debt close to all-time highs, because of predictions of higher borrowing and more persistent inflation.
Traders are assessing to what extent Sanae Takaichi’s proposals will mirror the Abenomics strategy pushed by ex-prime minister Abe.
One analyst explained:
In contrast to last year, she has not engaged from promoting Abenomics during the party election, but most know her underlying stance and her approval of Abe’s Three Arrows approach.
Markets could then push to gain understanding regarding her stance, plus the degree of influence she may be in shaping the BoJ’s policy thinking, ahead of the BoJ’s next meeting is considered a key event and a 25bp hike considered likely...
Economic Calendar
- 08:30 British Summer Time: European construction data for September
- 9:30 AM UK time: UK building sector data for the last month
- 6.30pm BST: Bank of England governor Bailey to give keynote speech at an investment conference 2025
Brian Hernandez
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