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

Financial Market Response following the Japanese Leadership Election

FX analysts at major investment firms have exited their strategies to hold a long position regarding the Japanese yen following the country’s ruling party chose Takaichi as its head.

In a note called “Leaving yen positions,” a global head for currency analysis commented:

We went long JPY as part of our strategy but have closed this due to the party leadership vote. The unexpected win by Takaichi creates significant doubt regarding the nation’s policy focus and the timing of interest rate increases by the Bank of Japan.

Analysts concur that inflationary pressures exist in Japan, but doubts are resurfacing regarding how it will be addressed.

The expert also warned evidence of political control across Japan (where state authorities influence the central bank’s actions) represent a downside risk.

Gold Nears $4,000 per ounce Threshold

Bullion values are achieving fresh record highs, once more, in its strongest year since 1979.

The spot price of gold has climbed by 1% or more today at $3,944 an ounce, as it closes in on the $4,000 per ounce level.

This means bullion prices has increased half again since the start of January, heading for its top annual returns in over 45 years.

The metal has risen this year due to multiple reasons, among them increasing fears that government debts are unsustainable.

Takaichi’s election win in the party vote will only have reinforced apprehensions that politicians could seek to secure growth by borrowing more and reduced rates, and rely on inflation to erode the value of the resulting debt.

Financial Summary

Tokyo’s bourse has rallied to a record high this morning, while the yen is plunging, following the leadership of the country’s ruling party went unexpectedly to by spending advocate Sanae Takaichi.

Expectations that Takaichi is likely to be a pro-stimulus prime minister has triggered a wave of enthusiastic buying lifting Japan’s benchmark index to a 5% gain, as it gained more than 2300 points ending at just over 48,000.

However, the currency is trending downward – it’s down about 2 percent against the US dollar reaching 150.3 against the greenback.

Takaichi, who should become the nation’s initial woman PM in the coming weeks, has long admired of Thatcher. Yet even though her social policies are right-leaning on social policy, she takes an un-Thatcherite approach to fiscal policy, and has advocate a revival of government spending and accommodative central bank measures.

Consequently, she’s expected to persist with the national effort to spur activity via government outlays and lower interest rates, which would lead to higher inflation and increased borrowing.

As a result the weaker yen, with traders expecting less monetary tightening in Tokyo compared to earlier expectations.

The nation’s debt securities are also down today, pushing up the yield on its 30-year debt close to peak levels, on expectations of increased debt issuance and sustained inflationary pressures.

Traders are assessing the degree to which Sanae Takaichi’s policies will echo the policies of Shinzo Abe advocated by previous leader Shinzo Abe.

One analyst commented:

Unlike in late 2024, Takaichi has refrained from highlighting the three-arrow strategy in the recent vote, but most know her core beliefs and her appreciation of Abe’s three-arrow philosophy.

Markets could then push to obtain clarity on her policies, as well as exactly how influential she may be in shaping monetary policy, given the October BoJ meeting is considered a “live” affair with a quarter-point increase seen as a real possibility...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for September
• 9:30 AM UK time: UK construction PMI for September
• 6:30 PM UK time: Central bank head the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit 2025