EUR/JPY consolidates as Yen benefits from GDP data, Euro aided by growth revision

EUR/JPY trades around 179.60 on Monday at the time of writing, virtually unchanged on the day after pulling back from last week’s multi-year high near 180.00. The cross remains directionless, caught between a Japanese Yen (JPY) supported by domestic and geopolitical factors, and a Euro (EUR) benefiting from a slightly improved macroeconomic backdrop in the Eurozone.

On the Japanese side, data published by the Cabinet Office show that Gross Domestic Product (GDP) contracted 0.4% QoQ in Q3, a smaller decline than the 0.6% contraction expected. On an annualized basis, activity fell 1.8%, a milder contraction than the projected 2.5% drop.

The figures confirm the economy’s fragility but dampen expectations of an imminent rate hike by the Bank of Japan (BoJ), especially as Prime Minister Sanae Takaichi continues to advocate maintaining accommodative monetary conditions to support households. At the same time, BoJ Governor Kazuo Ueda highlights robust consumption and a tightening labor market, noting that underlying inflation is gradually moving toward the 2% target. A message that keeps the door open to a monetary policy adjustment when conditions allow.

Market sentiment remains pressured in Asia following renewed geopolitical tensions between China and Japan over Taiwan. A sharp exchange of warnings between the two countries has fueled risk aversion, which traditionally supports the Japanese Yen as a safe-haven asset.

In Europe, the Euro receives additional support from the European Commission, which upgraded its 2025 growth forecast for the Eurozone to 1.3%, from 0.9% previously. The revision reflects stronger-than-expected investment, a surge in exports earlier this year, and the upcoming inclusion of Bulgaria in the single-currency bloc, mechanically lifting the region’s average growth rate. Brussels warns, however, that risks remain tilted to the downside, including renewed trade tensions, geopolitical uncertainty, and global financial fragility, though it stresses that the European Union (EU) economy continues to expand despite an “adverse” environment.

This more constructive outlook adds to the cautious stance of the European Central Bank (ECB), reinforcing expectations of a prolonged policy pause that modestly supports the Euro.

Against this backdrop, with moderate support for the Euro and persistent defensive demand for the Japanese Yen, EUR/JPY remains in a consolidation phase around 179.60, awaiting fresh macroeconomic catalysts.