EUR/JPY climbs as Eurozone growth beats expectations, Japan inflation eases

EUR/JPY trades around 183.70 on Friday at the time of writing, up 0.27% on the day. The pair benefits from a relatively supportive macroeconomic backdrop for the Euro (EUR), while the Japanese Yen (JPY) remains under pressure following weaker-than-expected inflation data from Tokyo.

In the Eurozone, preliminary German Gross Domestic Product (GDP) figures show that growth accelerated to 0.3% in the fourth quarter, after stagnating in the previous quarter and beating market expectations. On a yearly basis, the German economy expanded by 0.4%, confirming a gradual improvement in economic momentum. At the Eurozone level, the economy also grew by 0.3% QoQ, above the 0.2% consensus, while annual growth comes in at 1.4%. Meanwhile, the Unemployment Rate fell to 6.2% in December, reinforcing the view of a resilient labor market.

However, the recent appreciation of the Euro is reviving concerns about the competitiveness of European exports and downside risks to inflation. These worries have led to the first calls for interest rate cuts since last summer within the European Central Bank (ECB). Should this narrative gain broader traction among policymakers, it could cap the upside potential of the single currency. Investors are also awaiting preliminary German Harmonized Index of Consumer Prices (HICP) data, due later in the day, expected to show a monthly decline, which could further strengthen the disinflation narrative.

According to Societe Generale analysts, the disinflation trend is expected to dominate in 2026 across the Eurozone, driven by moderating wage growth and favorable commodity market dynamics. The bank forecasts average inflation of 1.7% in 2026, down from 2.1% in 2025, while highlighting two-sided risks related to factors such as excess supply from China, energy markets and foreign exchange developments.

On the Japanese side, the Japanese Yen (JPY) is weighed down by softer inflation data from Tokyo. The Consumer Price Index (CPI) dropped sharply in January, pointing to easing demand-driven inflation pressures. This development reduces the urgency for the Bank of Japan (BoJ) to further tighten monetary policy after its recent rate hike. In addition, fiscal and political concerns, notably linked to the government’s economic stance and the approach of snap elections, continue to weigh on the Japanese currency.

Against this backdrop, the divergence in macroeconomic dynamics between a slightly more resilient Eurozone and a Japan facing slowing inflation continues to support EUR/JPY, although expectations surrounding future policy decisions by both central banks remain a key focus for markets.