Japanese Yen Tumbles while Nikkei Soars to Peak Following Takaichi's Election Victory; Gold Tops $4,000 Mark

Financial Market Response following Japan's Ruling Party Vote

Foreign exchange experts from prominent financial institutions have exited their strategies to hold an optimistic view regarding the Japanese yen after Japan’s leading political group chose Takaichi to be its leader.

In a note named “Leaving yen positions,” a lead strategist for foreign exchange explained:

We went long JPY as part of our strategy but are now getting out after the weekend’s election result. Takaichi’s unforeseen success creates renewed unpredictability regarding the nation’s policy focus and the timing of interest rate increases by the Bank of Japan.

There is agreement that rising prices are an issue for Japan, but questions are mounting regarding how it will be addressed.

The strategist further cautioned evidence of political control across Japan (in which politicians direct the central bank’s actions) are a tail risk.

Gold Nears the $4,000/oz Level

Bullion values are achieving fresh record highs, today, in its strongest year since the late 1970s.

The spot price of the precious metal has jumped more than 1 percent today at $3,944 an ounce, nearing the $4,000 per ounce level.

This indicates the gold price has increased fifty percent from the beginning of the year, likely to achieve its best annual gains since the late 1970s.

The metal has risen in recent months by several factors, among them rising concerns that government debts cannot be maintained.

Takaichi’s success in Japan has further strengthened concerns that leaders could seek to boost output through higher borrowing and cheaper credit, and use inflation to reduce the real value of the resulting debt.

Financial Summary

Tokyo’s bourse has rallied to unprecedented levels today, with the currency dropping, following the leadership of the LDP was unexpectedly secured by fiscal dove Takaichi.

Expectations that Takaichi is likely to be a pro-stimulus prime minister has triggered a wave of enthusiastic buying lifting the Nikkei 225 share index higher by five percent, as it gained over 2300 points to finish at 48,085.

However, the currency is trending downward – it’s down about 2 percent versus the dollar to 150.3 yen per dollar.

Sanae Takaichi, who should become the first woman to lead Japan in the coming weeks, is a known fan of Margaret Thatcher. But although her social policies are right-leaning in social matters, Takaichi takes an un-Thatcherite approach to fiscal policy, and promotes a revival of government spending and loose monetary policy.

As such, analysts anticipate to continue the country’s drive to stimulate its economy through public investment and reduced borrowing costs, which would lead to rising inflation and increased borrowing.

Hence the weaker yen, as investors anticipate less monetary tightening from the Bank of Japan compared to earlier expectations.

Japan’s government bond values have declined in Monday trading, lifting the interest rate on thirty-year bonds approaching record highs, on expectations of higher borrowing and lasting price increases.

Traders will be calculating the degree to which Takaichi’s proposals will mirror the policies of Shinzo Abe implemented by former PM Shinzo Abe.

A brokerage head commented:

Different from previous comments, the leader has avoided from promoting the three-arrow strategy in this LDP leadership campaign, but most know her fundamental position and her appreciation of the former PM’s three-arrow approach.

Traders may therefore move for more information on that position, and how much impact she could be in directing the central bank’s decisions, ahead of the BoJ’s next meeting is seen as a “live” affair and a rate rise considered likely...

Economic Calendar

• 8.30am BST: Eurozone construction PMI for the previous month
• 9.30am BST: UK building sector data for the last month
• 18:30 BST: BOE chief Bailey to speak at an investment conference this year