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EUR/JPY declines below 184.50 as geopolitical risks boost Japanese Yen

  • EUR/JPY softens to around 184.20 in Monday’s Asian session. 
  • Trump said strikes to continue in Iran until objectives are met. 
  • BoJ’s Himino said rate hikes are likely to continue. 

The EUR/JPY cross loses ground to near 184.20 during the Asian trading hours on Monday. The Japanese Yen (JPY) strengthens against the Euro (EUR) as traders turn to safe-haven currency amid the Iran crisis. 

US President Donald Trump said that he will “avenge” the deaths of three US service members and said the combat operations in Iran will continue. On Monday, Israeli strikes were launched at Beirut's southern suburbs as Hezbollah said it fired rockets and drones toward Israel in retaliation for the death of Iranian Supreme Leader Ali Khamenei. The conflict across the Middle East is heightening traders' anxiety, supporting the Japanese Yen (JPY) and creating a headwind for the cross. 

Additionally, hawkish remarks from Japanese officials might contribute to the JPY’s upside. Bank of Japan (BOJ) Deputy Governor Ryozo Himino said on Monday that while the current policy remains "somewhat accommodative," the central bank should moderately hike rates as long as its economic and price projections are met.

The European Central Bank (ECB) remains cautious due to "perceived inflation" being higher among consumers and potential upward pressures from wage growth. ECB President Christine Lagarde stated that efforts to curb inflation have been "effective" but emphasized that the bank is not pre-committing to any specific rate path.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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