Euro holds gains against Japanese Yen amid hawkish ECB rate outlook

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The EUR/JPY cross posts modest gains around 184.90 during the early European session on Thursday. The Euro (EUR) strengthens against the Japanese Yen (JPY) amid hawkish signals by European Central Bank (ECB) officials.

EUR/JPY trades with mild gains near 184.90 in Thursday’s early European session.
ECB policymakers signaled that interest rate hikes are likely to begin as early as June 2026.
BoJ’s Masu warned that an Iran war energy shock could hit Japan harder than the 1973 oil crisis.

The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting. ECB policymaker Joachim Nagel said on Wednesday that the probability that the central bank will need to raise borrowing costs due to the Iran war is rising.

Meanwhile, ECB Chief Economist Philip Lane argued that officials must carefully study the fallout on growth and inflation before making a judgment call, and that determining the appropriate monetary policy stance is a judgment call.

The Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Thursday that the impact of the Iran war-driven energy shock on Japan’s economy may be more severe than the 1973 oil crisis, and the risk requires attention. Masu added that with the policy rate near the estimated neutral level, the central bank must more closely assess prices, employment and financial conditions for further moves.

Fears of further currency intervention from Japanese authorities could underpin the JPY and act as a headwind for the cross. Japan's Finance Minister Satsuki Katayama said last week that “regarding recent currency moves, we confirmed that Japan and the US have been coordinating very well and have maintained close communication.”

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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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