Insights 
VT 
The EUR/JPY has been trading around 176.90, retreating from its all-time high of 177.94. This adjustment comes amid political instability in France, impacting the Euro negatively. The resignation of French Prime Minister Sebastien Lecornu has intensified concerns about the fiscal deficit. Lecornu is negotiating with the opposition, while a new prime minister is expected to be named by Emmanuel Macron soon.
Japanese Yen Challenges
The Japanese Yen may face challenges with the anticipated fiscal policies of incoming Prime Minister Sanae Takaichi. She supports increased fiscal spending and a loose monetary policy. Takaichi stated the Bank of Japan would set its policy independently but in alignment with government goals, aiming to prevent excessive Yen depreciation. Market expectations for a BoJ rate hike in December have diminished, with a shift in focus to March next year.
Meanwhile, reports suggest strengthening US-Japan trade relations. The Euro reached an eight-week low at 1.1542 amid French political tensions. EUR remains weakest against the Yen in today’s trading, reflecting in current percentage changes against major currencies, where the Euro showed a 0.11% decrease against the Yen.
We see EUR/JPY pulling back from its all-time high near 177.94, a level not seen since well before the 2008 financial crisis. This retreat is a significant event, suggesting the long-term uptrend may be losing steam. Traders should be cautious, as this could be the start of a larger correction or consolidation period.
The main pressure on the pair comes from political uncertainty in France, which is causing the Euro to weaken. With the latest projections showing France’s fiscal deficit could reach 5.5% of GDP this year, concerns over the country’s credit rating are rising. We are closely watching President Macron’s choice for a new prime minister today, as it will signal the government’s future fiscal path.
Japanese Government Policies
On the other side, the Japanese Yen’s potential for strength is limited by the new government’s policies. Incoming Prime Minister Sanae Takaichi is signaling more fiscal spending and a continued loose monetary policy from the Bank of Japan. Recent data supports this, with September’s core inflation slowing to 2.4%, giving the BoJ an excuse to delay rate hikes until March 2026.
Given these opposing forces, an increase in volatility is highly likely in the coming weeks. We believe options strategies like buying straddles on EUR/JPY could be effective, as they profit from a large price move in either direction. This approach removes the need to guess whether French political risk or Japanese monetary policy will have the bigger immediate impact.
For those anticipating further downside due to the situation in France, buying put options offers a clear way to profit from a falling EUR/JPY. This can also serve as a hedge for anyone holding long positions in the pair. The current implied volatility presents a reasonable entry point before any further political shocks from Paris can materialize.
