Japanese Yen Tumbles as Nikkei Jumps to All-Time High Following Sanae Takaichi’s Election Victory; Gold Approaches $4,000 Mark

Investor Sentiment following the Japanese Ruling Party Vote

Foreign exchange experts at major investment firms have reportedly closed their recommendations for holding a long position regarding the yen following Japan’s ruling party selected Sanae Takaichi as the new head.

In a report named “Leaving yen positions,” one lead strategist for currency analysis commented:

We held a long yen position as part of our strategy but are now getting out due to the LDP election outcome. The unexpected win by Takaichi reintroduces too much uncertainty around the nation’s policy focus and the expected date of interest rate increases by the Bank of Japan.

Experts agree that rising prices are an issue within the Japanese economy, but doubts are resurfacing about the approach to managing it.

The expert further cautioned that signs of fiscal dominance within Japan (in which politicians direct the central bank’s actions) pose a potential danger.

Gold Nears the $4,000 Threshold

Gold prices are achieving new all-time peaks, again, in its top-performing period since 1979.

The current price of bullion has climbed by 1% or more this morning reaching $3,944/oz, as it closes in on the $4,000 per ounce level.

This shows the gold price has jumped fifty percent since January 1st, on track for its strongest yearly performance since the Iranian Revolution.

Gold has been driven higher in recent months due to multiple reasons, such as growing worries that public borrowing are unsustainable.

Takaichi’s victory in Japan has further strengthened apprehensions that leaders will attempt to stimulate the economy via increased debt and reduced rates, and depend on rising prices to reduce the real value of accumulated debt.

Trading Update

The Japanese equity market has jumped to a record high today, while the yen is plunging, following the top position of the governing party was surprisingly won by spending advocate Sanae Takaichi.

Forecasts that Takaichi will be a pro-stimulus prime minister has ignited a surge of optimistic trading driving the Nikkei 225 share index higher by five percent, as it gained more than 2300 points to close at 48,085.

Yet the Japanese yen is very much moving the opposite way – it has fallen almost 2% versus the dollar reaching 150.3 against the greenback.

The incoming leader, who should become the first woman to lead Japan later this month, is a long-time admirer of the former UK leader. However, while she holds conservative views on social policy, Takaichi adopts a different strategy in economic policy, and supports higher state investment and accommodative central bank measures.

Therefore, 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 greater borrowing.

As a result the falling currency, as investors anticipate fewer interest rates hikes from the Bank of Japan compared to earlier expectations.

Japan’s government bond values have also fallen today, lifting the interest rate on long-term Japanese bonds close to peak levels, because of predictions of increased debt issuance and more persistent inflation.

Traders are evaluating to what extent the new leader’s policies will resemble the policies of Shinzo Abe implemented by previous leader Shinzo Abe.

A brokerage head noted:

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

Investors might thus seek for more information on her policies, and how much impact she could be in shaping the central bank’s decisions, ahead of the BoJ’s next meeting is viewed as a “live” affair and a rate rise seen as a real possibility...

Economic Calendar

• 8.30am BST: Eurozone construction PMI for the previous month
• 09:30 BST: UK construction PMI for the last month
• 6:30 PM UK time: Central bank head Bailey to speak at Scotland’s Global Investment Summit this year