Yen Weakness Triggers Intensified Verbal Intervention from Japanese Officials

The Japanese yen continued its downward trajectory overnight, with the USD/JPY pair hitting a new high for the year at 160.87. This persistent depreciation has heightened concerns among Japanese authorities, leading to stronger verbal interventions. Japan's top currency official, Kanda, expressed grave concern yesterday, stating, "I am deeply worried about the recent rapid weakening of the yen. We are closely watching market trends with a heightened sense of urgency and will take necessary actions against any excessive movements." This follows his earlier warnings this week regarding Japan's preparedness to intervene at any moment.

Finance Minister Suzuki echoed this sentiment overnight, voicing strong concerns about the impact of one-sided foreign exchange movements on Japan's economy. While these verbal interventions may temporarily slow the yen's decline, they must be backed by direct market intervention to be effective. However, the success of such measures remains uncertain, considering previous efforts in late April and early May took about two months to counteract losses before the USD/JPY surged to new highs this week.

Upcoming Key Economic Events and Political Risks

In contrast to the yen's volatility, other major currency pairs have remained relatively stable this week, ahead of several key events. These include tonight's first US Presidential debate, tonight’s release of the latest US PCE deflator report for May, the first round of the French election on June 30, and next week's UK election on June 4, followed by the second round of the French election on June 7. Political risks in Europe, particularly in France, are having a more pronounced effect on the euro compared to the pound.

The EUR/USD pair has retreated towards the middle of its current trading range of 1.0500 to 1.1000, while EUR/GBP has fallen below the long-standing support level of 0.8500 due to increased political risk in France. The pound, after approaching 1.2800 earlier this month, has dropped back towards support closer to 1.2600.

EURUSD Daily Range 

 Source: Finlogix Charts The UK election results are not expected to significantly impact the pound, as the Labour party holds a strong lead in opinion polls and is anticipated to secure a large majority in parliament. Market participants are comfortable with the prospect of a stable UK political landscape under Labour, which could improve relations with the EU.

French Election and Euro Performance

Conversely, the upcoming elections in France are likely to have a more substantial impact on the euro. The far-right National Rally (RN) party is poised to become the largest party in parliament. RN (France's National Rally) leader Jonathan Bardella has emphasized a pragmatic approach to economic policy, including plans to cut VAT (Value-Added Tax, this implies that Bardella aims to make energy and fuel more affordable by lowering the tax imposed on these commodities) on energy and petrol, which he intends to offset by taxing windfall profits on energy companies and closing tax loopholes on maritime shipping. This approach aims to defend France's interests without causing conflict with the EU.

Despite these reassurances, the euro remains under pressure heading into the French elections, with risks tilted to the downside against both the US dollar and the pound. The yield spread between French and German 10-year bonds has stabilized between 75-80 basis points, reflecting market uncertainty as the elections approach.

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