• The Japanese Yen strengthens after firm comments from Japanese authorities against excessive moves
• Persistent caution from the Bank of Japan continues to cap the potential for a sustained recovery in the currency
• The Euro remains supported by expectations that inflation will stay close to the European Central Bank’s target

EUR/JPY corrects and trades around 183.90 on Tuesday at the time of writing, down by 0.30% on the day, after posting a record high near 184.92 earlier in the week. The pullback in the cross comes as the Japanese Yen (JPY) rebounds, supported by expectations of intervention from Japanese authorities in response to the rapid depreciation of the currency.

Support for the Japanese Yen followed comments from Japan’s Finance Minister, Satsuki Katayama, who said the government has full freedom to act against excessive moves in the foreign exchange market and would take appropriate action if necessary. These remarks were enough to trigger profit-taking on EUR/JPY, even though many investors believe the impact of such warnings could be short-lived in the absence of stronger fundamental backing.

Indeed, monetary policy remains a key source of vulnerability for the Japanese Yen. The Bank of Japan (BoJ) continues to strike a cautious tone on further monetary tightening after raising its policy rate by 25 basis points to 0.75%. Policymakers have provided no clear guidance on the timing of future rate hikes. Former Bank of Japan board member Makoto Sakurai said the next rate increase could come around the middle of next year, while warning that additional hikes may become more challenging thereafter, limiting the JPY’s appeal over the medium term.

On the European side, the Euro (EUR) shows a steadier performance. Investors are still trying to gauge the direction of European Central Bank (ECB) monetary policy into 2026. Several officials have indicated that inflation is expected to remain close to the 2% target over the medium term, reducing the likelihood of near-term policy adjustments.

At its latest meeting, the European Central Bank kept interest rates unchanged, with President Christine Lagarde stating that monetary policy is in a good place and that rates are likely to remain steady for an extended period. Signals that the rate-cut cycle may be ending could continue to support the Euro and limit the downside in EUR/JPY.

On the data front, Germany’s Import Price Index rose 0.5% month over month in November, beating market expectations. On an annual basis, the index still fell 1.9%, confirming that inflationary pressures remain contained in the Eurozone.

Overall, EUR/JPY remains sensitive to comments from Japanese officials and to monetary policy expectations on both sides. In the near term, hopes of intervention are supporting the Japanese Yen and encouraging consolidation below recent highs, while the relative stance of the two central banks continues to shape the broader trend.