GBP/JPY gathers strength above 201.50 as Sanae Takaichi wins LDP election

• GBP/JPY strengthens to near 201.70 in Monday's early European session.
• Sanae Takaichi will become Japan's first female Prime Minister after winning the LDP leadership election on Saturday.
• Worries over UK labor market risks might cap the upside for the cross. 

The GBP/JPY cross climbs to around 201.70, the highest since July 2024, during the early European session on Monday. The Japanese Yen (JPY) weakens against the Pound Sterling (GBP) as a ruling-party vote for Sanae Takaichi to become Japan's next Prime Minister. 

Takaichi was elected as the leader of Japan's ruling Liberal Democratic Party (LDP). Takaichi would become the first female Prime Minister of Japan and is expected to oppose any further monetary tightening by the Bank of Japan (BoJ), which weighs on the JPY. A vote in parliament to replace outgoing Shigeru Ishiba is scheduled on October 15.

"Sanae Takaichi's surprise victory in the LDP leadership election marks an important turning point for Japan's policy and market outlook," Societe Generale strategists wrote in a note, pushing back the likely timing of the BOJ's next rate hike to December from October.

Traders reduce their bets of a Bank of Japan (BoJ) rate hike at its October meeting. Overnight index swaps are currently priced in nearly a 25% odds of an increase, down from 60% odds before the Liberal Democratic Party's (LDP) leadership vote.

Growing UK labor market concerns could create a headwind for the cross. Bank of England's (BoE) Decision Maker Panel (DMP) survey last week showed that firms' year-ahead expectations for employment came in flat in the three months to September. This is the first time since the quarter to November 2020, when companies didn't anticipate increasing their staff numbers. The UK central bank is likely to hold rates steady through the end of 2025, with potential cuts expected in 2026.