Market Reactions following Japan's Leadership Election
FX analysts from prominent investment firms have reportedly terminated their previous positions to hold an optimistic view on the Japanese yen following the country’s governing party elected Sanae Takaichi to be its chief.
In a note titled “Leaving yen positions,” one global head for currency analysis explained:
We held a long yen position within our portfolio but have now exited after the party leadership vote. The unexpected win by Takaichi brings back significant doubt around Japan’s policy priorities as well as the schedule for BoJ monetary tightening.
Experts agree that rising prices are an issue in Japan, but uncertainty is now going up again on how it will be dealt with.
The analyst also warned indicators of government influence in Japan (in which politicians direct the central bank’s actions) represent a downside risk.
Gold Approaches $4,000 per ounce Mark
Bullion values are hitting new all-time peaks, once more, in its top-performing period since the late 1970s.
The current price of the precious metal has jumped more than 1 percent in recent trading reaching $3,944/oz, approaching the $4,000 per ounce level.
This shows bullion prices has surged fifty percent since January 1st, likely to achieve its strongest yearly performance in over 45 years.
Bullion has advanced in recent months due to multiple reasons, such as increasing fears that public borrowing may be unmanageable.
Sanae Takaichi’s success in the party vote has further strengthened apprehensions that politicians could seek to secure growth via increased debt and reduced rates, and depend on rising prices to reduce the real value of new borrowings.
Trading Update
The Japanese equity market has jumped to unprecedented levels this morning, while the yen is plunging, after the chief role of the LDP went unexpectedly to by stimulus supporter Sanae Takaichi.
Predictions that Sanae Takaichi will be a PM favoring economic stimulus has ignited a wave of enthusiastic buying that has pushed Japan’s benchmark index higher by five percent, rising by more than 2300 points to close at just over 48,000.
But the yen is trending in the other direction – it’s down nearly two percent versus the dollar to 150.3 yen per dollar.
Takaichi, who is expected to become the first woman to lead Japan later this month, is a long-time admirer of Thatcher. But although her social policies are right-leaning in social matters, Takaichi takes an un-Thatcherite approach on budget matters, and has advocate increased public expenditure and accommodative central bank measures.
As such, markets predict to continue Japan’s push to boost economic growth though fiscal spending and lower interest rates, which would lead to higher inflation and more debt.
Hence the falling currency, as markets predict fewer interest rates hikes from the Bank of Japan compared to earlier expectations.
Japan’s government bond values have declined in Monday trading, driving higher the yield on long-term Japanese bonds approaching peak levels, on expectations of higher borrowing and more persistent inflation.
Investors are evaluating to what extent the new leader’s policies will echo the “Abenomics” programme advocated by ex-prime minister Abe.
A brokerage head noted:
In contrast to last year, Takaichi has refrained from talking up the three-arrow strategy in the recent vote, but experts understand her fundamental position and her support of Shinzo Abe’s Three Arrows philosophy.
Traders may therefore move to gain understanding on that position, and how much impact she may be in shaping the central bank’s decisions, with the Bank of Japan’s October session is considered a key event with a quarter-point increase potentially on the table...
Today’s Schedule
- 8.30am BST: Eurozone construction PMI for September
- 9:30 AM UK time: British construction figures for September
- 18:30 BST: BOE chief the BOE’s Andrew Bailey to speak at Scotland’s Global Investment Summit this year
