EUR/JPY falls to weekly lows around 159.00 after Ishiba’s victory in LDP leadership race

• EUR/JPY plummets around 450 pips intraday and is pressured by a combination of factors.
• Ishiba wins the LDP presidential election to become Prime Minister of Japan and strengthens the JPY.
• The lower French and Spanish CPI data weigh on the Euro and put more pressure on the cross.

The EUR/JPY cross experienced a spectacular intraday reversal and plummeted around 450 pips from its highest level since August 16, set earlier this Friday. The downward trajectory drags spot prices to a new weekly low during the first half of the European session, although it stops near the round mark of 159.00.

The Japanese Yen (JPY) strengthens across the board after former Defense Chief Shigeru Ishiba beat Sanae Takaichi to become the next leader of the ruling Liberal Democratic Party (LDP) and secure the post of Prime Minister of Japan in his fifth attempt. The news was received positively by JPY bulls, as Ishiba had been critical of the Bank of Japan (BoJ) for raising rates too quickly. This turned out to be a key trigger behind the initial intraday drop in the EUR/JPY cross.

The selling bias accelerated after the publication of lower consumer inflation figures in France and Spain. Preliminary data from statistics agency INSEE showed consumer prices in France rose less than expected and the harmonized inflation rate rose 1.5% year-on-year in September, up from 2.2% the previous month. Furthermore, the preliminary indicator prepared by the INE revealed that Spain’s Consumer Price Index (CPI) slowed to a rate of 1.5% year-on-year from 2.3% in August.

The lower data reaffirmed market bets on at least a 25 basis point (bp) interest rate cut by the European Central Bank (ECB) at its next monetary policy meeting in October. This, in turn, weighs heavily on the shared currency and further contributes to the decline of the EUR/JPY pair. Meanwhile, core inflation in Tokyo – Japan’s capital – matched the BoJ’s 2% target in September, which, along with risk-on sentiment, limits the safe-haven JPY’s gains and helps the cross bounce back higher. the area of ​​159.40-159.50.

However, investors are still weighing the possibility of another BoJ rate hike later this year. This, in turn, favors the JPY bulls and supports the prospects of a new bearish move for the EUR/JPY cross. Even from a technical perspective, the formation of a ‘Death Cross’ on the daily chart – the 50-day SMA crossing below the all-important 200-day SMA earlier this month – validates the negative outlook and supports prospects for further losses.