EUR/JPY retreats from 176.25 highs after France's PM resignation
- The Euro retreats from 176.25 highs but remains contained above 175.00.
- France's Prime Minister Lecornu's resignation has sent the Euro tumbling.
- Previously, the victory of Takaichi in Japan's ruling party's elections had triggered a sharp Yen sell-off.
The Euro has taken a beating on Monday, following the unexpected resignation of France’s Prime Minister Sébastien Lecornu. The EUR/JPY has wobbled from long-term highs at 176.25 to 174.95 before returning to the mid-range of the 175.00s.
France’s President's office rattled markets on Monday, announcing the resignation of the recently appointed Prime Minister Lecornu, only a few hours after the new cabinet was revealed.
Lecornu was the fifth prime minister in the last two years, and his resignation plunges the country into a political crisis that is threatening to drag President Macron. France’s opposition parties, particularly those on the right and left wings of the political spectrum, are calling for snap elections.
Before that, the Euro had jumped about 300 pips from levels right above 173.00 on the back of broad-based Japanese Yen weakness, following the election of the pro-stimulus Sanae Takaichi as the new leader of the governing Liberal Democratic Party.
Investors’ expectations that Takaichi will pursue an expansive monetary policy and a looser monetary policy have put into question the Bank of Japan’s monetary tightening plans and sent the Japanese Yen tumbling across the board.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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