• EUR/JPY extends its decline and trades around 182.70, down 0.50% on Wednesday.
• The Japanese Yen strengthens after Sanae Takaichi’s landslide election victory and on intervention speculation.
• The Euro remains supported by expectations of steady monetary policy in the Eurozone.

EUR/JPY continues its correction for a third consecutive day and trades around 182.70 on Wednesday at the time of writing, down 0.50% on the day. The pair drops below the psychological 183.00 level, pressured by a marked strengthening of the Japanese Yen (JPY) amid domestic political optimism and expectations of monetary policy normalization.

The Japanese Yen draws support from the election outcome in Japan, where Prime Minister Sanae Takaichi leads the Liberal Democratic Party to a historic landslide victory. Investors anticipate that a strengthened mandate could facilitate the implementation of pro-growth measures and provide the Bank of Japan (BoJ) with greater room to adjust its monetary policy gradually. This outlook fuels speculation about potential rate hikes in the medium term, underpinning the Japanese currency.

In addition, markets are once again discussing the possibility of intervention by Japanese authorities to curb excessive currency weakness. Even in the absence of any official announcement, these expectations help limit short positions in the Japanese Yen and add downward pressure on EUR/JPY.

On the European side, the Euro (EUR) retains some fundamental support. The European Central Bank (ECB) maintains a cautious stance after ending its easing cycle last year. The relative resilience of growth in the Eurozone currently reduces the need for further monetary accommodation. ECB President Christine Lagarde remains confident that inflation will stabilize around 2%, downplaying the impact of the latest softer Consumer Price Index (CPI) readings.

At the same time, the recently finalized trade agreement between the European Union (EU) and India has drawn attention. According to analysts at Danske Bank, the deal will eliminate tariffs on more than 90% of traded goods within seven years. Although India currently accounts for only a limited share of Eurozone exports, its strong growth potential could provide additional structural support to the Euro over the medium term.

In the short term, however, momentum remains tilted in favor of the Japanese Yen. Investor positioning toward Japanese assets, amid expectations of further domestic support measures and a gradual normalization of monetary policy, continues to weigh on EUR/JPY.