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- EUR/JPY Bounces Back from Below 162.00 as German Friedrich Merz is Confirmed as New Chancellor.
- German Merz Initially Failed to Secure an Absolute Majority in the First Voting Process at the Bundestag.
- Trump’s Tariff Threats on Pharmaceutical Imports Have Increased the JPY’s Safe-Haven Demand.
The EUR/JPY pair has rebounded above the 162.00 level during the North American trading session, recovering from an intraday low near 161.60. This resurgence follows the confirmation of Germany’s Conservative leader, Friedrich Merz, who successfully secured an absolute majority after receiving 325 votes in the Bundestag, the lower house of Parliament, during the second round of voting. The Euro initially faced headwinds but regained strength as political certainty returned to the Eurozone’s largest economy. Market participants are now closely watching for Merz’s initial policy announcements and their potential impact on the Eurozone’s economic outlook.
In the initial attempt, Friedrich Merz garnered 310 votes, falling short of the 316 votes required to be elected Chancellor of Germany. This occurred despite the CDU/CSU and Social Democrats collectively holding 326 seats in the Bundestag, highlighting initial divisions and uncertainties within the coalition. The near miss in the first vote triggered a brief period of market anxiety, with investors concerned about potential political gridlock and its implications for Germany’s economic stability. The subsequent successful vote alleviated these concerns.
The confirmation of Friedrich Merz as Chancellor has significantly diminished concerns surrounding political instability in Germany. This development is anticipated to bolster the implementation of previously approved defense spending measures from March, potentially stimulating economic activity and reinforcing Germany’s commitment to its NATO obligations. Furthermore, the Japanese Yen has experienced increased safe-haven demand recently, fueled in part by renewed tariff threats from former President Trump targeting pharmaceutical imports. This external pressure adds another layer of complexity to the EUR/JPY exchange rate dynamics, as investors weigh both domestic political developments in Germany and broader global trade risks. The market is now pricing in the potential for increased fiscal stimulus in Germany under Merz’s leadership, which could further support the Euro in the coming weeks.
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