The EURJPY exchange rate is tumbling to the downside as fears of France leaving the eurozone have reignited.
EURJPY – Daily Chart
EURJPY has lost the strength it had into late-November and is tumbling to support at 158.20. Another level comes in below around 156 which would bring the spike 2024 low in play.
With a battle over the country’s budget and an ongoing fiscal crisis, France’s 10 year yield spread to Germany has soared up to over 85bps – its highest since the European financial crisis – reigniting ‘Frexit’ fears.
The French government is facing higher borrowing costs as its lack of a majority in Parliament makes it harder to implement spending cuts and tax hikes needed to slow the country’s ballooning budget deficit.
The recently appointed Prime Minister Michel Barnier said:
“There will probably be a rather serious storm and serious turbulence in financial markets” if there is a no-confidence vote in his government.
“If the government falls, emergency measures will be taken,” which will miss full-year expenses.
Bloomberg said Barnier’s political survival hangs on rival leader Marine Le Pen’s plan to back a potential no-confidence vote when he presents final versions of the 2025 government and social-security budget bills in the coming days and weeks. Le Pen has said she will bring down his administration if her demands to better protect households aren’t met.
Le Pen has reacted angrily to the government’s plan to increase taxes on electricity, lower medicine support, and delay a link between pensions and inflation. She has also demanded additional measures to tackle immigration.
Barnier said on Tuesday that electricity prices will fall by 9% next year, “and we’ll see if we can do more to preserve the purchasing power of the French”.
“We could very well come to a situation where the government is again put into jeopardy,” said Greg Hirt, global chief investment officer for Allianz Global Investors.
The latest woes come amidst a backdrop of economic decline in both France and Germany, while there is also the tension between Russia and Ukraine on Europe’s doorstep. The yen’s previous status as a safe haven could be returning with all of these dramas unfolding.
Thursday will bring consumer confidence data for the euro at 6pm HKT, while Friday at 7:30am is Japan inflation and employment data.
