• EUR/JPY hits a new all-time high at 177.86 on Wednesday before stabilizing.
• Japan’s wage growth slows sharply in August, reducing the likelihood of an imminent Bank of Japan rate hike.
• Hopes of a political solution avoiding new snap elections in France are easing pressure on the Euro.

EUR/JPY extends its rally for the fourth consecutive session on Wednesday, trading around 177.50 at the time of writing, up 0.20% for the day, after reaching a new record high of 177.86. The Japanese Yen (JPY) weakens following softer wage data, which dampens expectations of an early interest rate increase by the Bank of Japan (BoJ).

Japan’s Labor Cash Earnings rose by just 1.5% YoY in August, down from a 4.1% rise in July and well below market forecasts of 2.6%. Real wages fell 1.4% from a year earlier, marking the eighth consecutive monthly decline as inflation continues to outpace income growth. These figures weaken the case for near-term monetary tightening by the BoJ.

At the same time, political uncertainty is growing in Tokyo. The victory of Sanae Takaichi as leader of the ruling Liberal Democratic Party (LDP) positions her as Japan’s next Prime Minister, but her expansionary fiscal stance could complicate the BoJ’s policy outlook. One of her close advisers, Takuji Aida, noted that a rate hike in October would be premature. The LDP has also postponed the start of the extraordinary Diet session to October 20 or later, reflecting ongoing difficulties in renewing its coalition with the Komeito party.

On the European side, EUR/JPY’s upside remains constrained by political turbulence in France. However, on Wednesday, France’s recently resigned Prime Minister, Sébastien Lecornu, said he would present a proposal to President Emmanuel Macron later in the day and emphasized that “the dissolution of parliament is becoming increasingly unlikely.” His remarks offered a brief reprieve to the struggling Euro.

Lecornu is due to speak on Wednesday at 18:00 GMT. While he is not expected to make any formal announcement, the tone and signals he sends out could have an impact on the market and the Euro.