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

Investor Sentiment following the Japanese Ruling Party Vote

Foreign exchange experts from prominent investment firms have terminated their previous recommendations to hold an optimistic view on the yen after the country’s leading political group chose Sanae Takaichi to be its chief.

In commentary named “Leaving yen positions,” one lead strategist for foreign exchange commented:

Our strategy was bullish on the yen as part of our strategy but are now getting out after the weekend’s election result. The unexpected win by Takaichi creates too much uncertainty around Japan’s policy priorities as well as the schedule for the BoJ [Bank of Japan] hiking cycle.

Analysts concur that inflation is a problem for Japan, but questions are mounting on how it will be dealt with.

The expert additionally noted indicators of government influence within Japan (where state authorities influence the BoJ’s moves) pose a potential danger.

Gold Approaches the $4,000/oz Threshold

Bullion values are achieving fresh record highs, once more, during its best performance in over four decades.

The current price of gold has surged by 1% or more this morning at $3,944 an ounce, as it closes in on the $4000/oz mark.

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

Bullion has advanced in recent months due to multiple reasons, among them increasing fears that government debts cannot be maintained.

Takaichi’s election win in Japan is likely amplifying concerns that government officials could seek to stimulate the economy through higher borrowing and cheaper credit, and use inflation to reduce the real value of the resulting debt.

Financial Summary

The Japanese equity market has surged to an all-time peak today, as the yen falls, after the leadership of the governing party was unexpectedly secured by spending advocate Sanae Takaichi.

Forecasts that Sanae Takaichi will become a PM favoring economic stimulus has triggered a wave of enthusiastic buying driving the Tokyo stock index to a 5% gain, rising by more than 2300 points ending at just over 48,000.

But the yen is heading the opposite way – it has fallen about 2 percent relative to the USD at 150.3¥/$.

Takaichi, set to be the first woman to lead Japan soon, is a long-time admirer of the former UK leader. Yet even though her social policies are right-leaning regarding social issues, the new leader takes an un-Thatcherite approach in economic policy, and supports increased public expenditure and accommodative central bank measures.

As such, analysts anticipate to continue the national effort to spur activity though fiscal spending and reduced borrowing costs, potentially causing higher inflation and increased borrowing.

Thus yen depreciation, with traders expecting less monetary tightening from the Bank of Japan than before.

The nation’s debt securities have declined this session, pushing up the interest rate on long-term Japanese bonds close to peak levels, on expectations of higher borrowing and more persistent inflation.

The markets are assessing how closely the new leader’s plans will echo the policies of Shinzo Abe implemented by ex-prime minister Shinzo Abe.

One analyst noted:

In contrast to last year, the leader has avoided from talking up the Abenomics program during the party election, but experts understand her underlying stance and her approval of Abe’s Three Arrows approach.

Investors might thus seek for more information on her policies, as well as exactly how influential she may be in shaping monetary policy, ahead of the BoJ’s next meeting is considered a potential turning point and a rate rise considered likely...

Today’s Schedule

• 8.30am BST: European construction data for the previous month
• 09:30 BST: UK construction PMI for the last month
• 18:30 BST: BOE chief the BOE’s Andrew Bailey to give keynote speech at an investment conference this year