Yen Plummets as Nikkei Soars to Record High Following Takaichi's Leadership Win; Gold Tops $4,000 Mark

Investor Sentiment following the Japanese Ruling Party Vote

FX analysts at major banks have reportedly terminated their strategies to hold a bullish stance on the yen after Japan’s governing party elected Sanae Takaichi to be its leader.

In commentary called “Leaving yen positions,” a chief for foreign exchange stated:

Our strategy was bullish on the yen in our FX Blueprint but are now getting out following the weekend’s election result. Sanae Takaichi’s surprise victory brings back renewed unpredictability concerning Japanese economic goals and the expected date of the BoJ [Bank of Japan] hiking cycle.

Experts agree that inflation is a problem within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The expert further cautioned indicators of government influence within Japan (where state authorities influence the central bank’s actions) pose a potential danger.

Gold Nears the $4,000/oz Level

Bullion values are reaching fresh record highs, once more, in its strongest year in over four decades.

The immediate value of the precious metal has climbed more than 1 percent today reaching $3,944/oz, approaching the $4,000 per ounce level.

This shows gold’s value has surged by 50% since January 1st, likely to achieve its top annual returns in over 45 years.

Gold has been driven higher in recent months because of various drivers, including growing worries that national debt levels cannot be maintained.

Sanae Takaichi’s election win in the party vote will only have reinforced apprehensions that politicians may try to boost output through higher borrowing and reduced rates, and rely on inflation to diminish the worth of accumulated debt.

Financial Summary

Japan’s stock market has rallied to an all-time peak today, as the yen falls, after the top position of the governing party was unexpectedly secured by fiscal dove Sanae Takaichi.

Forecasts that Takaichi will become a leader supporting government spending has triggered a surge of optimistic trading driving the Nikkei 225 share index to a 5% gain, rising by more than 2300 points to finish at 48,085.

However, the currency is heading the opposite way – it’s down nearly two percent relative to the USD at 150.3¥/$.

The incoming leader, who is expected to become the first woman to lead Japan later this month, is a known fan of the former UK leader. However, while she is conservative regarding social issues, she takes an un-Thatcherite approach to fiscal policy, and has advocate a revival of government spending and easy money policies.

Therefore, markets predict to continue the national effort to boost economic growth via government outlays and cheap credit, which would lead to rising inflation and increased borrowing.

As a result yen depreciation, as markets predict less monetary tightening in Tokyo relative to previous forecasts.

The nation’s debt securities have declined today, lifting the interest rate on thirty-year bonds close to record highs, due to forecasts of increased debt issuance and sustained inflationary pressures.

Investors will be calculating the degree to which Takaichi’s proposals will echo the “Abenomics” programme implemented by ex-prime minister Shinzo Abe.

One analyst commented:

Unlike in late 2024, she has not engaged from promoting the three-arrow strategy in this LDP leadership campaign, but experts understand her core beliefs and her support of Abe’s Three Arrows philosophy.

Traders may therefore move to obtain clarity regarding her stance, and how much impact she could be in directing the BoJ’s policy thinking, with the Bank of Japan’s October session is seen as a key event and a 25bp hike potentially on the table...

Market Agenda

• 8.30am BST: European construction data for September
• 09:30 BST: UK building sector data for September
• 6.30pm BST: Central bank head the BOE’s Andrew Bailey to give keynote speech at an investment conference 2025