🔗 Share this article

Investor Sentiment to the Japanese Political Shift

Foreign exchange experts from leading banks have reportedly closed their recommendations for holding a long position on the Japanese yen after the country’s leading political group elected Sanae Takaichi as its head.

In commentary called “Getting out of the yen,” a lead strategist for currency analysis commented:

We went long JPY within our portfolio but are now getting out after the party leadership vote. Sanae Takaichi’s surprise victory reintroduces renewed unpredictability regarding the nation’s policy focus and the expected date of BoJ monetary tightening.

Experts agree that rising prices are an issue for Japan, but uncertainty is now going up again on how it will be dealt with.

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

Gold Closes In On the $4,000/oz Mark

Gold prices are achieving unprecedented levels, once more, during its best performance since the late 1970s.

The immediate value of gold has jumped by over 1% today at $3,944 an ounce, approaching the $4000/oz mark.

This means the gold price has increased by 50% since January 1st, heading for its best annual gains since the Iranian Revolution.

The metal has risen throughout the year by several factors, including rising concerns that government debts are unsustainable.

The new leader’s election win in the Japanese election has further strengthened apprehensions that government officials could seek to boost output by borrowing more and lower interest rates, and rely on inflation to reduce the real value of the resulting debt.

Financial Summary

Japan’s stock market has surged to unprecedented levels this morning, with the currency dropping, following the leadership of the LDP was unexpectedly secured by stimulus supporter Sanae Takaichi.

Predictions that Sanae Takaichi will become a PM favoring economic stimulus has triggered a rush of positive investment driving the Nikkei 225 share index to a 5% gain, as it gained 2315 points ending at 48,085.

However, the currency is heading the opposite way – it’s down nearly two percent versus the dollar to 150.3 yen per dollar.

The incoming leader, who should become Japan’s first female prime minister later this month, is a known fan of the former UK leader. But although she is conservative in social matters, the new leader adopts a different strategy in economic policy, and promotes increased public expenditure and accommodative central bank measures.

As such, markets predict to continue the national effort to stimulate its economy though fiscal spending and cheap credit, which would lead to increased price pressures and more debt.

As a result the weaker yen, as markets predict less monetary tightening in Tokyo than before.

Japanese long-term bond prices are also down this session, pushing up the interest rate on thirty-year bonds close to all-time highs, due to forecasts of more government loans and more persistent inflation.

The markets are assessing how closely the new leader’s policies will echo the Abenomics strategy implemented by previous leader Shinzo Abe.

A market expert commented:

In contrast to last year, the leader has avoided from highlighting Abenomics in the recent vote, but most know her underlying stance and her approval of Abe’s three-arrow approach.

Traders may therefore move to obtain clarity regarding her stance, as well as exactly how influential she may be in shaping monetary policy, given the October BoJ meeting is viewed as a potential turning point and a 25bp hike potentially on the table...

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: BOE chief Bailey to speak at a financial forum this year