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Investor Sentiment to Japan's Political Shift

Currency strategists from prominent investment firms have reportedly terminated their previous positions for holding a bullish stance regarding the yen following the country’s governing party selected Takaichi as its chief.

In commentary titled “Getting out of the yen,” a chief for foreign exchange commented:

We went long JPY within our portfolio but have closed this after the LDP election outcome. The unexpected win by Takaichi creates significant doubt regarding the nation’s policy focus and the expected date of interest rate increases by the Bank of Japan.

Experts agree that inflationary pressures exist in Japan, but doubts are resurfacing on how it will be dealt with.

The analyst further cautioned indicators of government influence within Japan (where the government controls the BoJ’s moves) pose a potential danger.

Gold Closes In On $4,000 per ounce Level

Bullion values are achieving fresh record highs, once more, during its best performance since 1979.

The current price of gold has climbed by 1% or more today at $3,944 an ounce, approaching the $4,000 per ounce level.

This indicates bullion prices has jumped by 50% since the start of January, likely to achieve its strongest yearly performance in over 45 years.

Gold has been driven higher this year because of various drivers, such as growing worries that government debts cannot be maintained.

Sanae Takaichi’s victory in Japan is likely amplifying apprehensions that government officials could seek to boost output via increased debt and reduced rates, and depend on rising prices to diminish the worth of the resulting debt.

Financial Summary

Japan’s stock market has surged to a record high in Monday trading, as the yen falls, after the chief role of the LDP went unexpectedly to by fiscal dove Sanae Takaichi.

Predictions that Sanae Takaichi is likely to be a pro-stimulus prime minister has ignited a wave of enthusiastic buying driving the Nikkei 225 share index to a 5% gain, adding over 2300 points to close at just over 48,000.

But the yen is very much moving downward – it dropped almost 2% against the US dollar to 150.3 yen per dollar.

Sanae Takaichi, who should become Japan’s first female prime minister later this month, is a long-time admirer of Thatcher. However, while she holds conservative views on social policy, she follows a contrasting path on budget matters, and promotes increased public expenditure and easy money policies.

Therefore, she’s expected to continue Japan’s push to stimulate its economy though fiscal spending and cheap credit, potentially causing rising inflation and more debt.

Hence the falling currency, with traders expecting less monetary tightening from the Bank of Japan relative to previous forecasts.

Japan’s government bond values are also down in Monday trading, pushing up the interest rate on thirty-year bonds approaching peak levels, on expectations of more government loans and lasting price increases.

Investors are assessing to what extent the new leader’s policies will mirror the “Abenomics” programme pushed by ex-prime minister Shinzo Abe.

A market expert noted:

Different from previous comments, she has not engaged from talking up the three-arrow strategy in the recent vote, but experts understand her core beliefs and her approval of the former PM’s three-arrow philosophy.

Traders may therefore move for more information regarding her stance, plus the degree of influence she may be in forming monetary policy, with the Bank of Japan’s October session is viewed as a key event and a 25bp hike potentially on the table...

Today’s Schedule

• 08:30 British Summer Time: Eurozone construction PMI for the previous month
• 9:30 AM UK time: British construction figures for September
• 6:30 PM UK time: Bank of England governor the BOE’s Andrew Bailey to give keynote speech at Scotland’s Global Investment Summit this year