Global financial markets are unsettled due to major political events in Japan and France this week. The developments had a large impact on currency, bond, and equity markets worldwide. Japan’s ruling Liberal Democratic Party (LDP) elected Sanae Takaichi to go on and become Japan’s first female prime minister. In France, Prime Minister Sébastien Lecornu suddenly resigned, causing further political instability.
Political uncertainty causes economic waves through the global market
Japan’s election of Sanae Takaichi resulted in the Japanese yen (¥) falling sharply to 150.47 to the dollar before recovering to 149.91. This resulted in low expectations of an interest hike from the Bank of Japan (BoJ). In France, following the resignation of the prime minister, the euro (€) dropped by approximately 0.6% against the United States dollar ($). French government bond yields grew with the increased fiscal and political uncertainty. While changes in the financial markets, such as bold yields, are expected with major events such as the Russia-Ukraine conflict, it is interesting that the ‘smaller’ events in Japan and France have shaken the economic and political realm:
- Global markets have since become more wary due to fears of a possible United States (U.S.) government shutdown.
- Further confusion about future moves by the Federal Reserve (Fed) due to limited U.S. data.
- Deutsche Bank, Maybank, and Macquarie Group analysts have all warned of growing market turbulence.
- Investors have moved money into other ‘safe-haven’ assets such as the U.S. dollar, gold, and bitcoin.
Japan’s new era of leadership changes the game
Sanae Takaichi’s election as the LDP’s leader is a monumental event for both Japan and the world. To boost economic growth, Takaichi is expected to focus on aggressive government spending. After the election, the Japanese yen showed fluctuations; however, they were controlled. Investors’ odds that the BoJ would hike rates moved from being fairly confident at 68% to being uncertain at 50%. As investors reevaluate Japan’s fiscal direction, Japanese bond yields climb.
Japan’s leadership change can also spark jitters in other countries, particularly close Asian markets, such as India, which has just promised up to ¥10 trillion with Japan to join forces against U.S. tariff uncertainty. This partnership has already signaled a deeper regional alignment, as both economies seek stability amid global pressure; thus, it is expected that other countries in Asia will be susceptible to changes due to the change of leadership in Japan.
Political instability in France and market fallout
After France’s prime minister resigned, the event sent ripples of tension through President Emmanuel Macron’s already-divided administration. French bond yields jumped as the euro instantly fell 0.6% versus the dollar, making investors even more cautious about the country’s fiscal stability. The impact was extensive, as pressure was also observed on the Swiss franc and the British pound. France’s situation highlights how political instability can directly impact economic and financial outlooks at a domestic, regional, and global level. In Europe, France’s ability to restore cabinet stability will be crucial to easing the pressure on the euro and bond markets.
Combined turmoil in Japan and France has rattled global foreign exchange (FX), bond, and equity markets. The U.S. has strengthened, and gold and bitcoin have also risen sharply, reaching new highs. Political transitions no longer remain confined within national borders. As traders adjust positions in currencies and government debt, political outcomes in major economies are shaping daily market changes. The resulting selloffs and moves to ‘safe-haven’ assets reflect a tangible and dangerous link between political uncertainty, monetary expectations, and cross-border financial volatility.
The combined political whirlwinds of Japan and France underscore how quickly domestic events can shake global economic stability. As investors weigh leadership transitions and political fractures, financial markets remain highly sensitive to policy signals and geopolitical events. Global markets will likely remain on edge and unpredictable until both nations can restore clarity in their respective administrations.