The Euro dropped on Monday after France’s Prime Minister Sébastien Lecornu unexpectedly resigned. The EUR/JPY pair fell from 176.25 to 174.95 before stabilizing around 175.00. Lecornu’s resignation, which came right after his cabinet announcement, sparked political unrest in France. This marks the fifth prime ministerial change in two years, prompting opposition parties to call for snap elections.

Impact Of The Japanese Elections

Previously, the Euro had risen about 300 pips due to the weak Japanese Yen. This shift followed the election of pro-stimulus leader Sanae Takaichi as head of Japan’s Liberal Democratic Party. Her election raised hopes for a more relaxed monetary policy in Japan, affecting the Bank of Japan’s tightening plans and weakening the Yen. The Yen’s value is influenced by factors like the Bank of Japan’s policies and the differences in bond yields between the US and Japan. The Bank of Japan’s ultra-loose policy from 2013 to 2024 led to the Yen’s decline. Now, with a shift in BoJ policy and interest rate cuts by other central banks, the gap is closing. As a safe-haven asset, the Yen typically strengthens during times of market stress. This often causes it to gain value against riskier currencies.

Current French Political Crisis And Market Implications

The recent political turmoil in France, following Lecornu’s resignation, has weakened the Euro. As of October 6, 2025, the EUR/JPY pair is struggling to maintain the 175.00 level, adding significant uncertainty to the Eurozone. Derivatives traders must factor in this elevated risk. The French political crisis is putting stress on debt markets, a key indicator for us. In just one day, the spread between French and German 10-year government bonds widened by over 20 basis points, indicating increased risk perception not seen since the sovereign debt concerns of the mid-2010s. This suggests that strategies betting on further Euro weakness, especially against the US Dollar or Swiss Franc, might be wise. Meanwhile, the Japanese Yen is also facing challenges after Takaichi’s win. Her victory raises questions about the Bank of Japan’s recent moves toward policy normalization that started in 2024. The expectation of renewed monetary easing makes the Yen less attractive for investors right now. Recent data shows that the Bank of Japan can afford to pause its tightening plans. Japan’s national core CPI for August 2025 was 2.2%, below forecasts, marking the third month of slowing growth. This gives the new leadership the political cover to pressure the central bank to hold off on more interest rate hikes, keeping the Yen weak. With these opposing forces at play, we anticipate significant volatility in the EUR/JPY cross over the coming weeks. Traders might want to consider using options strategies, like a long straddle, to profit from potential large price movements in either direction without needing to predict a specific outcome. The one-month implied volatility for EUR/JPY has already risen from 9% to nearly 14% this week, signaling market unease. However, it’s important to remember the Yen’s traditional role as a safe-haven asset. If the political situation in France worsens and causes a broader flight to safety, capital may flow into the Yen despite its underlying weaknesses. This poses a risk for anyone holding large short positions on the Japanese currency. Create your live VT Markets account and start trading now.

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