The EUR/JPY is currently trading at about 176.90, down from its record high of 177.94. This decline is linked to political instability in France, which has negatively affected the Euro. The resignation of French Prime Minister Sebastien Lecornu has raised concerns about the country’s fiscal deficit. Lecornu is working with the opposition, while President Emmanuel Macron is expected to announce a new prime minister soon.

Challenges for the Japanese Yen

The Japanese Yen could face difficulties under the upcoming Prime Minister Sanae Takaichi, who advocates for more fiscal spending and a lenient monetary policy. Takaichi mentioned that the Bank of Japan (BoJ) would maintain an independent policy but align it with government objectives to avoid too much Yen depreciation. Expectations for a BoJ rate hike in December are fading, with attention now shifting to March of next year. Reports are also indicating stronger trade relations between the US and Japan. The Euro hit an eight-week low at 1.1542 amid the political issues in France. Today, the Euro is the weakest against the Yen, showing a 0.11% decline. The EUR/JPY has pulled back from its all-time high of 177.94, a level not reached since before the 2008 financial crisis. This drop is noteworthy, suggesting that the long-term upward trend may be slowing down. Traders should be careful, as this may indicate the start of a larger correction or a period of consolidation. The main pressure on this currency pair comes from the political uncertainty in France, leading to a weaker Euro. Current projections estimate France’s fiscal deficit could hit 5.5% of GDP this year, raising concerns about the country’s credit rating. We are closely monitoring President Macron’s choice for a new prime minister today, which will shape the government’s future fiscal direction.

Japanese Government Policies

On the flip side, the Japanese Yen’s potential strength is limited by the new government’s policies. Incoming Prime Minister Sanae Takaichi is pushing for increased fiscal spending and ongoing lenient monetary policies from the BoJ. Recent data shows core inflation slowed to 2.4% in September, giving the BoJ a reason to delay rate hikes until March 2026. With these conflicting factors, we expect increased volatility in the coming weeks. Options strategies like buying straddles on EUR/JPY could be a smart move, as they profit from significant price changes in either direction. This strategy eliminates the need to predict whether the French political situation or Japanese monetary policy will have a more immediate effect. For those expecting further declines due to France’s situation, buying put options provides a clear way to benefit from a falling EUR/JPY. This can also act as a hedge for anyone holding long positions in the pair. The current implied volatility offers a good entry point before potential political shocks from Paris emerge. Create your live VT Markets account and start trading now.

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