EUR/JPY climbs as Japanese Yen weakens amid BoJ policy uncertainty, mixed German data

EUR/JPY trades around 184.60 on Wednesday at the time of writing, up 0.58% on the day, as the Japanese Yen (JPY) remains under pressure against the Euro (EUR). The bullish momentum in the cross comes amid growing uncertainty about the pace of monetary policy normalization in Japan.

According to local media reports, Japanese Prime Minister Sanae Takaichi expressed concerns about further rate hikes during her meeting last week with Bank of Japan (BoJ) Governor Kazuo Ueda. Although Ueda clarified that the discussion broadly covered economic and financial developments and that no specific monetary policy requests were made, the headlines have fueled market doubts about the BoJ’s ability to continue tightening policy at a steady pace.

The nomination of board members perceived as favoring accommodative policies further reinforces the view that normalization could remain gradual. This perception has led investors to scale back expectations of additional rate hikes in Japan, weakening the Japanese Yen and mechanically supporting the advance in EUR/JPY.

On the European side, the Euro benefits from a relatively stable backdrop. European Central Bank (ECB) President Christine Lagarde recently stated that inflation in the Eurozone and the current interest rate stance are in a good place. She emphasized that decisions will continue to be taken meeting by meeting, based on incoming data, while describing the balance of risks as broadly balanced.

Investors are now digesting the latest batch of German and Eurozone data, which paints a mixed macroeconomic picture. In Germany, the GfK Consumer Confidence Survey for March deteriorated to -24.7 from a revised -24.2 in February, missing market expectations of -23.5 and highlighting persistent fragility in household sentiment.

At the same time, Germany’s Gross Domestic Product (GDP) for the fourth quarter was confirmed at 0.3% on a quarterly basis and 0.4% YoY, in line with expectations, suggesting that Europe’s largest economy is stabilizing but not yet regaining strong momentum.

On the inflation front, the Eurozone's Harmonized Index of Consumer Prices (HICP) for January was revised down to -0.6% MoM from -0.5%, while the annual rate was confirmed at 1.7%. Core HICP was also confirmed at -1.1% MoM and 2.2% YoY. The downward revision in the monthly headline figure reinforces the view that disinflationary pressures remain present, even as core inflation stays relatively resilient on a yearly basis. This combination reinforces expectations of a more wait-and-see hold from the ECB in the near term.