Insights 
VT 
The Euro faced declines on Monday following the unexpected resignation of France’s Prime Minister Sébastien Lecornu. The EUR/JPY fell from 176.25 to 174.95 before stabilising around 175.00s.
The resignation just after Lecornu’s cabinet announcement stirred political unrest in France. This marks the fifth prime minister change in two years, leading to calls for snap elections from opposition parties.
Impact Of The Japanese Elections
Earlier, the Euro had gained approximately 300 pips due to the Japanese Yen’s weakness. This came after Sanae Takaichi, a pro-stimulus leader, was elected to head Japan’s Liberal Democratic Party.
This development raised expectations of a looser monetary policy in Japan, impacting the Bank of Japan’s tightening plans and weakening the Yen. The Japanese Yen’s value is influenced by several factors, including the Bank of Japan’s policies and US-Japan bond yield differentials.
The Bank of Japan’s long-standing ultra-loose policy from 2013 to 2024 resulted in the Yen’s depreciation. The 2024 shift in BoJ policy and interest-rate cuts by other central banks are closing these gaps.
As a safe-haven investment, the Yen tends to strengthen during market stress. Such conditions typically enhance the Yen’s value against risk-prone currencies.
Current French Political Crisis And Market Implications
The political turmoil in France following Prime Minister Lecornu’s resignation has immediately weakened the Euro. We are seeing this pressure right now on October 6, 2025, as the EUR/JPY pair struggles to hold the 175.00 level. This introduces significant uncertainty into the Eurozone, which derivatives traders must price in as elevated risk.
This French political crisis is creating measurable stress in debt markets, which is a key indicator for us. The spread between French and German 10-year government bonds has widened by over 20 basis points in a single day, a spike in risk perception we haven’t seen since the sovereign debt concerns of the mid-2010s. This suggests that options strategies betting on further Euro weakness, particularly against the US Dollar or Swiss Franc, could be prudent.
At the same time, the Japanese Yen is facing its own headwinds after the election of the pro-stimulus Sanae Takaichi. Her victory casts doubt on the Bank of Japan’s recent moves toward policy normalization that began back in 2024. This expectation of renewed monetary easing makes the Yen an unattractive asset for the time being.
Recent data supports the view that the Bank of Japan has room to pause its tightening plans. Japan’s national core CPI for August 2025 came in at 2.2%, missing forecasts and marking the third straight month of deceleration. This gives the new leadership political cover to pressure the central bank to delay further interest rate hikes, keeping the Yen weak.
Given these opposing forces, we expect significant volatility in the EUR/JPY cross in the coming weeks. Traders should consider using options to trade this uncertainty, as a strategy like a long straddle could profit from a large price move in either direction without betting on a specific outcome. One-month implied volatility for EUR/JPY has already jumped from 9% to nearly 14% this week, reflecting the market’s nervousness.
However, we must not forget the Yen’s traditional role as a safe-haven asset. If the political situation in France deteriorates and triggers a broader flight to safety across global markets, capital could flow into the Yen despite its weak domestic fundamentals. This creates a risk for anyone holding large short positions on the Japanese currency.
