The EUR/JPY pair has paused its three-day winning streak and is trading around the 161.50 mark during the Asian session on Tuesday. Despite this pause, the pair continues to benefit from a weaker Japanese Yen (JPY), which remains under pressure due to ongoing uncertainty about the Bank of Japan‘s (BoJ) next rate hike.
BoJ’s Dilemma: Rate Hike Timing and Wage Growth
Bank of Japan Deputy Governor Ryozo Himino stated that while the central bank‘s policy direction favors further rate hikes, the BoJ must carefully assess both upside and downside risks domestically and internationally. Himino emphasized the importance of monitoring short-term economic activity, prices, and financial conditions before making any further policy changes. Speculation has grown that the BoJ may delay raising rates until April, awaiting confirmation of sustained wage growth during the spring negotiations. This uncertainty over the BoJ’s next move has contributed to the ongoing weakness in the JPY.
US Tariff Policy Speculation Weakens Safe-Haven JPY
Additionally, reports that US President-elect Donald Trump’s economic team is considering a gradual increase in import tariffs have further weakened the JPY. The gradual approach to tariffs aims to avoid a sharp increase in inflation while managing trade policy adjustments. This news has boosted investor sentiment and, in turn, supported the Euro (EUR) against the Yen, pushing the EUR/JPY cross higher.
ECB’s Easing Expectations Weigh on the Euro
Despite the JPY’s weakness, the Euro faces downward pressure from increasing expectations that the European Central Bank (ECB) will continue its accommodative policy stance. ECB Chief Economist Philip Lane mentioned at the Asian Financial Forum (AFF) 2025 that additional interest rate cuts are likely as the central bank aims to avoid a further slowdown in the economy.
ECB Governing Council member and Bank of France Governor François Villeroy de Galhau also remarked that although the French economy is “slowing down,” he does not anticipate a recession. He expects French economic growth to rebound in 2026 and 2027, with GDP growth projected to be 0% in the fourth quarter of 2024. Despite the ECB’s accommodative stance, the lack of a clear recessionary outlook in France provides some support to the Euro, limiting its downside.
Market Outlook
The EUR/JPY pair will continue to be influenced by the divergent monetary policy outlooks between the European Central Bank and the Bank of Japan. With the ECB potentially leaning toward further easing and the BoJ’s uncertainty regarding its next rate hike, the pair could experience volatility depending on any new developments related to these central banks’ policy decisions.
In the short term, the EUR/JPY cross may face consolidation or a pause in its recent uptrend, as the market digests the impact of both BoJ and ECB signals. The ongoing developments in global trade, particularly surrounding US tariff policies, will also continue to impact risk sentiment and could contribute to further fluctuations in the pair.
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