EUR/JPY steadies after election-led volatility in the Yen

The Euro (EUR) steadies against the Japanese Yen (JPY) on Monday, with EUR/JPY trimming a part of losses seen earlier in the Asian session following Japan’s election results. At the time of writing, the cross is trading around 185.75, rebounding from an intraday low near 184.87.

The Euro also draws some support from a stronger-than-expected Sentix Investor Confidence reading, with the index rising to 4.2 in February from -1.8 in January.

On the data front, the Eurozone economic docket remains light this week, leaving investors to take cues mainly from a heavy slate of European Central Bank (ECB) speakers for near-term direction in the Euro, with speeches from Joachim Nagel, President of the Bundesbank, and Christine Lagarde, President of the ECB, due later on Monday.

Looking ahead to Friday, attention will turn to the preliminary Employment Change (Q4) and Gross Domestic Product, seasonally adjusted (Q4) releases.

Earlier on Monday, Gediminas Šimkus, a member of the ECB Governing Council, said that interest rates are currently at neutral levels, with economic growth running close to its potential, as Reuters reported.

Šimkus added that the probability of the next policy move being either a rate hike or a rate cut is evenly balanced, describing the outlook as a “50/50” call.

On the other hand, the Yen remains firmly bid across the board in reaction to Japan’s election outcome, after Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party secured a historic landslide victory.

While markets see the decisive result as supportive for domestic demand, concerns persist over Japan’s already heavy public-debt burden, after Takaichi reiterated plans to suspend the 8% consumption tax on food for two years and roll out targeted tax cuts and fiscal spending to support households and consumption.

Although Takaichi sought to reassure markets, saying she would not resort to new debt issuance to fund the suspension of the sales tax on food, she also acknowledged concerns over the Yen’s excessive weakness, adding that she wants to “create an economy that can withstand FX changes.”

Meanwhile, Japan’s Labour Cash Earnings rose 2.4% YoY in December, easing from 1.7% in November and coming in below market expectations of 3.0%. Traders now turn their attention to the Producer Price Index (PPI) report due on Thursday.