Euro rebounds as Japanese Yen underperforms despite upbeat trade data

• Euro recovers slightly against the Japanese Yen as the latter underperforms.
• Japan’s Current Account surplus increased to 4,062 billion yen in August vs. 3,194 billion yen estimates.
• France aims to reducer the budget deficit of 5.4% of GDP this year to 5.0% in 2027.

The Euro (EUR) is up 0.14% at around 177.15 against the Japanese Yen (JPY) during the Asian trade on Thursday. The cross rebounds slightly after Wednesday’s sharp downside move, as the Japanese currency underperforms despite the release of the strong Japan Current Account data for August.

The data showed that the surplus increased to 4,062 billion yen in August, beating 3,194 billion yen estimates, and the prior release of 2,988 billion.

On the monetary policy front, Bank of Japan (BoJ) ‌policymaker Ayano Sato, who was appointed by Japan, said on Tuesday that she supports the idea of raising interest rates in several stages. The support for hawkish BoJ outlook from Japan’s representative board members improves the credibility of the central bank.

Though there are signs of slight recovery in the Euro against the Asia-Pacific currency, the outlook of the former remains uncertain due to heightened France fiscal risks. The Euro underperforms in the past few weeks as French bonds face intense sell-off sue to ballooning nation’s debt.

To counter increasing French fiscal concerns, presidential candidate Marine Le Pen has vowed €140 billion worth of spending cuts in the annual budget. Firstly, financial markets doubt that the minority government would be able to get the bill passes in the Parliament without compromise. Even if the budget gets passed, the risk premium to Euro amid political uncertainty will keep the currency under pressure.

France budget path seen narrowing but political risk premium persists

Analysts at Nomura note that France’s proposed budget aims to reduce the deficit “from an expected 5.4% of GDP this year to 5.0% in 2027,” but caution that “even this fairly modest reduction looks challenging amid political and public resistance to further belt-tightening.” They see “routes for PM Lecornu to secure budget passage, potentially through opposition party compromises or Article 49.3,” yet argue that “even successful passage is unlikely to remove France’s political risk premium ahead of the 2027 elections.”