EUR/JPY remains subdued near 183.00 as BoJ policy normalization gains traction

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EUR/JPY remains subdued as the Japanese Yen (JPY) receives support from growing acceptance that the Bank of Japan (BoJ) will stick to its policy normalization path. The currency cross trades around 183.00 during the Asian hours on Thursday.

EUR/JPY struggles as markets increasingly accept the Bank of Japan’s commitment to policy normalization.
Japan’s Labor Cash Earnings climbed 0.5% YoY in November, marking the weakest growth in four years.
Wednesday’s Eurozone HICP data showed inflation rose 2% YoY in December, as expected, and eased from 2.1% in November.

BoJ Governor Kazuo Ueda said earlier this week that the BoJ will continue raising rates if economic and price developments move in line with forecasts. Ueda further stated that adjusting the degree of monetary support will help the economy achieve sustained growth and that wages and prices are likely to rise together moderately.

Japan’s Labor Cash Earnings rose just 0.5% year-over-year (YoY) in November 2025, sharply slowing from October’s 2.5% gain and missing expectations of 2.3%. The weakest wage growth in nearly four years was driven by a 17% annual drop in bonus payments, while real wages fell 2.8% as inflation outpaced pay growth, complicating the Bank of Japan’s tightening plans.

However, the Japanese Yen may come under pressure as traders turn cautious amid rising tensions between Japan and China, after Beijing banned exports of certain rare earth elements and other items to Japan with potential military uses. Relations have deteriorated sharply since Japanese Prime Minister Sanae Takaichi said a Chinese invasion of Taiwan would pose a threat to Japan’s survival and could prompt a military response from Tokyo, according to a CNN report.

Traders will likely observe the medium-impact data, including Germany’s Factory Orders, the Eurozone’s Business Climate, and the Unemployment Rate data later in the day. Eurostat published the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for December on Wednesday, which climbed at an annualized pace of 2% in December, as expected, slower than 2.1% in November.

On a monthly basis, inflationary pressures grew by 0.2% after deflating 0.3% in the previous month. The Core HICP, which excludes volatile components such as food, energy, alcohol, and tobacco, grew at a slower pace of 2.3% year-on-year (YoY) against estimates and the prior reading of 2.4%. Month-on-month, the core HICP rose by 0.3%.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.