$EURJPY is no longer a clean carry trade. It is a referendum on French debt.
The French 10-year just hit 4.96%, the highest since 2002. Public debt is 119% of GDP. The 2027 budget seeks €43B in savings, and the market is not buying it. The spread over Germany topped 140 basis points, the widest since 2012. The euro is at a 15-month low against the dollar.
Japan is the other side of the cross. The Bank of Japan lifted rates to 1.25% in September, with another hike expected by December. The Japanese 10-year is above 3.1%. Eurozone inflation is 3.3%.
One central bank is fighting fragmentation. The other is exiting deflation. That gap is the trade.
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