- EUR/JPY holds steady as the Japanese Yen stays under pressure amid concerns over Japan’s weakening fiscal outlook.
- Japan’s PM Sanae Takaichi stressed proactive fiscal policy over excessive tightening to strengthen Japan’s capabilities.
- The Euro gained against major peers as easing Eurozone inflation reduced prospects of further ECB easing.
EUR/JPY holds ground after registering 0.51% gains in the previous session, trading around 182.90 during the Asian hours on Thursday. The currency cross holds steady as the Japanese Yen (JPY) remains under pressure amid worries about Japan’s weakening fiscal outlook.
Japanese Prime Minister Sanae Takaichi on Wednesday underlined the need for proactive fiscal policy to strengthen Japan's capabilities, rather than excessive fiscal tightening. Takaichi said, “We will achieve sustainable fiscal policy, social welfare system by reflating the economy, improving corporate profits, increasing household income via wage gains that then boost tax revenues.”
The JPY could find support as the Bank of Japan (BoJ) is widely expected to raise its policy rate by 25 basis points to 0.75% on Friday, with elevated food prices keeping inflation above the central bank’s 2% target. Markets will closely watch Governor Kazuo Ueda’s post-meeting comments for clues on next year’s policy path, amid speculation that rates could rise to 1% by July.
The Euro (EUR) advanced against its major peers as easing inflation in the Eurozone (EZ) reduced the likelihood of further monetary easing by the European Central Bank (ECB). ECB officials have indicated that additional rate cuts may not be necessary in 2026.
Attention now turns to the ECB’s December policy meeting, which is widely expected to be a non-event, with President Christine Lagarde likely to keep rates unchanged at this meeting and throughout next year.
Bank of Japan FAQs
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%.
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.
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.
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.
