EUR/JPY falls to 168.50 on election risk, focus shifts to BoJ policy

• EUR/JPY falls to 168.50 as Eurozone political uncertainty weakens the attractiveness of the Euro.
• Emmanuel Macron, President of France called early elections after exit polls showed significant seats for the far right led by Bardella.
• The BoJ could choose to reduce asset purchases as a step towards policy normalization.

The crossing EUR/JPY falls sharply to 168.50 in the American session on Monday, as political uncertainty in the Eurozone caused by French President Emmanuel Macron’s decision to dissolve parliament and call early elections weighed heavily on the Euro.

The decision came after exit polls for the European parliamentary elections indicated that Marine Le Pen’s far-right National Rally (RN) party won between 32% and 33% of the seats under the leadership of party president Jordan Bardella, which was more than double that of Macron’s centrist list. This has created upside risks to a change in government, creating uncertainty over the continuation of current fiscal policies.

Meanwhile, the absence of support for further interest rate cuts from European Central Bank (ECB) policymakers has failed to offer respite to the weak Euro. At the European session, ECB policymaker and Slovak central bank governor Peter Kazimir also said the central bank should not rush into another rate cut as progress on disinflation appears to be patchy in recent years. next months.

ECB policymakers fear that wage growth will remain firm, which could boost consumer spending and slow progress in lowering inflation toward the bank’s target. Meanwhile, a weak Euro is also expected to boost inflationary pressures by making Eurozone exports competitive in the global market.

On the Tokyo front, investors await the Bank of Japan’s (BoJ) monetary policy decision, which will be announced on Friday. The BoJ is expected to keep interest rates at their current levels but reduce asset purchases to maintain progress toward policy normalization.

On the economic front, revised estimates of Japan’s first-quarter Gross Domestic Product (GDP) showed the economy contracting at a slower pace of 1.8% from preliminary estimates of 2.0% on an annualized basis.