The EUR/JPY pair edged lower on Wednesday, trading around 176.00, down 0.13% on the day, as heightened geopolitical and political risks fueled demand for safe-haven assets, particularly the Japanese Yen (JPY). Despite soft domestic data, the Yen remains firm amid rising global uncertainty and regional instability.
Yen Gains Despite Weak Japanese Industrial Data
The Japanese Yen is holding strong even as Japan’s Industrial Production figures disappointed, falling 1.6% year-on-year in August, following a 1.3% decline in July. While these figures point to continued weakness in the domestic economy, risk-off sentiment continues to boost the Yen’s appeal as a traditional safe-haven asset.
Tensions between the US and China have flared once again, following comments by former US President Donald Trump, who warned of further trade restrictions if China enforces new export controls on rare earth elements and hikes port fees for foreign shipping. In response, Beijing imposed sanctions on several US-linked subsidiaries of South Korean shipbuilder Hanwha Ocean.
Japanese Politics and Policy in Focus
Japan’s internal political landscape is also drawing attention. With the Liberal Democratic Party (LDP) expected to nominate Sanae Takaichi as the next Prime Minister following a coalition breakdown with Komeito, markets are anticipating a continuation of fiscal stimulus and dovish monetary policy. Takaichi, a supporter of Abenomics-style economics, is likely to back increased government spending.
Analysts at OCBC noted, “Political uncertainty may delay the Bank of Japan’s (BoJ) policy normalization, even though macro conditions justify a rate hike.”
Euro Weakens on French Policy Reversal and Weak Data
On the European side, the Euro is under pressure following France’s suspension of its controversial pension reform. Prime Minister Sébastien Lecornu announced the delay until after the 2027 presidential election, a move aimed at defusing social unrest. However, the decision has raised doubts about France’s fiscal stability.
ING commented that while this suspension may reduce short-term political risk, “it undermines long-term confidence in France’s fiscal trajectory.”
Additionally, Eurostat reported that Eurozone Industrial Production dropped by 1.2% month-on-month in August after a 0.3% gain in July, though it rose 1.1% year-on-year. The mixed economic picture, alongside growing political uncertainty, has added pressure on the Euro.
EUR Performance Against Major Currencies
Despite its losses against the Yen, the Euro held up better against other major peers. According to a daily performance heat map, the Euro gained 0.18% against the US Dollar and was up slightly against the Canadian Dollar and Swiss Franc, though it slipped against the Australian Dollar and Japanese Yen.
| Currency | EUR % Change |
|---|---|
| USD | +0.18% |
| GBP | -0.07% |
| JPY | -0.09% |
| CAD | +0.10% |
| AUD | -0.29% |
| NZD | +0.07% |
| CHF | +0.07% |
Outlook
Looking ahead, EUR/JPY may remain under pressure as risk sentiment favors the Yen amid escalating global trade tensions and Eurozone political uncertainty. With Japanese policy direction and European fiscal concerns in focus, traders may lean further into safe-haven assets in the near term.
