• EUR/JPY trades lower on Tuesday, weighed down by persistent demand for the Japanese currency.
• The Japanese Yen holds firm after Sanae Takaichi’s election victory, as fiscal concerns are partly eased.
• Cautious comments from the ECB reinforce the view of a monetary status quo in the Eurozone.

EUR/JPY trades around 184.80 on Tuesday at the time of writing, down 0.50% on the day, as the strength of the Japanese Yen (JPY) continues to weigh on the cross despite Japan’s potentially expansionary political environment.

In Europe, the Euro’s (EUR) momentum remains subdued following the latest remarks from European Central Bank (ECB) President Christine Lagarde. She reiterated her confidence that inflation will sustainably return to the 2% target over the medium term, in line with last week’s monetary policy statement. This message reinforces expectations of a prolonged period of stable interest rates in the coming months, limiting the scope for additional support for the single currency.

On the Japanese side, the clear victory of Prime Minister Sanae Takaichi in last weekend’s elections has not, for now, weakened the Japanese Yen. While she is expected to continue an accommodative fiscal stance, markets have been reassured by her proposal to finance tax cuts through alternative funding sources, without increasing public debt. This approach has helped ease concerns about fiscal slippage and has supported the Japanese currency.

The Yen is also benefiting from verbal support from authorities. Japan’s Finance Minister, Satsuki Katayama, along with the country’s top currency diplomat, Atsushi Mimura, warned on Monday that immediate action could be taken in the event of excessive speculative moves against the currency. These comments reinforce the perception of heightened vigilance from authorities and contribute to the Japanese Yen’s firm tone, keeping EUR/JPY under pressure despite the absence of major macroeconomic shocks.