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Investor Sentiment to the Japanese Ruling Party Vote

Foreign exchange experts from leading investment firms have reportedly closed their positions to hold a bullish stance on Japan’s currency following the country’s leading political group selected Sanae Takaichi to be its leader.

In a report titled “Exiting the yen,” a chief for currency analysis explained:

We held a long yen position as part of our strategy but have closed this after the party leadership vote. Sanae Takaichi’s surprise victory creates too much uncertainty around Japanese economic goals and the timing of interest rate increases by the Bank of Japan.

Experts agree that rising prices are an issue in Japan, but doubts are resurfacing on how it will be dealt with.

The analyst further cautioned indicators of government influence within Japan (where the government controls monetary policy decisions) represent a downside risk.

Gold Closes In On the $4,000 Threshold

Gold prices are hitting fresh record highs, again, in its strongest year since 1979.

The immediate value of gold has surged by over 1% today to $3,944 per ounce, approaching the $4000/oz mark.

This indicates bullion prices has surged by 50% since the start of January, heading for its top annual returns since the late 1970s.

Bullion has advanced this year by several factors, including increasing fears that government debts are unsustainable.

Takaichi’s election win in the Japanese election has further strengthened worries that leaders may try to stimulate the economy by borrowing more and reduced rates, and depend on rising prices to diminish the worth of accumulated debt.

Trading Update

The Japanese equity market has jumped to an all-time peak in Monday trading, as the yen falls, after the chief role of the governing party went unexpectedly to by fiscal dove Takaichi.

Predictions that the new leader will be a PM favoring economic stimulus has triggered a rush of positive investment that has pushed the Nikkei 225 share index up by 5%, as it gained over 2300 points to close at just over 48,000.

However, the currency is heading downward – it’s down nearly two percent against the US dollar reaching 150.3 against the greenback.

The incoming leader, set to be the nation’s initial woman PM later this month, is a known fan of the former UK leader. Yet even though she holds conservative views in social matters, the new leader follows a contrasting path in economic policy, and supports a revival of government spending and accommodative central bank measures.

As such, analysts anticipate to maintain Japan’s push to stimulate its economy via government outlays and reduced borrowing costs, which would lead to higher inflation and increased borrowing.

As a result the falling currency, as investors anticipate less monetary tightening by Japanese authorities than before.

Japanese long-term bond prices have declined in Monday trading, driving higher the interest rate on its 30-year debt approaching peak levels, because of predictions of more government loans and lasting price increases.

Traders are assessing the degree to which the new leader’s plans will mirror the “Abenomics” programme advocated by ex-prime minister Shinzo Abe.

A market expert noted:

In contrast to last year, the leader has avoided from highlighting the three-arrow strategy during the party election, but experts understand her fundamental position and her support of the former PM’s Three Arrows approach.

Traders may therefore move to gain understanding on that position, and how much impact she could be in forming monetary policy, with the Bank of Japan’s October session is viewed as a “live” affair and a 25bp hike potentially on the table...

Today’s Schedule

• 08:30 British Summer Time: Euro area building activity for September
• 9:30 AM UK time: UK construction PMI for the last month
• 6.30pm BST: Central bank head Andrew Bailey to deliver address at Scotland’s Global Investment Summit this year