• The EUR/JPY cross trades slightly higher around 183.50 at the start of the week, supported by the Euro’s relative firmness.
• Slowing inflation in the Eurozone reinforces expectations of a prolonged pause in European monetary policy.
• Political uncertainty in Japan and international trade tensions keep latent volatility elevated in Japanese Yen crosses.

EUR/JPY trades around 183.50 on Monday at the time of writing, up 0.10% on the day, amid a backdrop of contrasting macroeconomic signals from Europe and Japan.

On the Eurozone side, the latest inflation data confirm a gradual disinflation trend. The Harmonized Index of Consumer Prices (HICP) was revised down to 1.9% YoY in December from 2.0% in the initial release, easing from 2.1% in November, coming in below market expectations. Core inflation, measured by the Core HICP, was confirmed at 2.3% YoY, after 2.4% in November, confirming the slowdown in underlying price pressures.

This environment supports the cautious stance of the European Central Bank (ECB). The institution has kept interest rates unchanged since ending its rate cut cycle in June 2025 and recently signaled that it is in no hurry to adjust policy again. The Governing Council continues to follow a data-dependent, meeting-by-meeting approach, without pre-committing to a specific rate path. Inflation close to the ECB’s 2% target therefore strengthens the case for a prolonged policy status quo, helping to stabilize the Euro (EUR).

On the geopolitical front, trade tensions between the European Union (EU) and the United States (US) add another layer of uncertainty. European leaders have warned that they are ready to implement retaliatory measures should the new tariffs announced by US President Donald Trump come into force. European Union ambassadors have agreed to intensify efforts to dissuade Washington while simultaneously preparing countermeasures. German Finance Minister Lars Klingbeil stated that Europe would respond strongly to any new US tariffs and would not be blackmailed, a stance that could keep investors on edge and trigger sharp fluctuations in Euro crosses.

In Japan, the Japanese Yen (JPY) remains under pressure amid rising political uncertainty. Prime Minister Sanae Takaichi announced plans to dissolve Parliament on January 23 and call a snap general election for February 8, weighing on political and economic visibility. This uncertainty undermines the Japanese Yen, although some supportive factors remain in place.

Japan’s Finance Minister Satsuki Katayama reiterated that all options, including direct and coordinated intervention with the United States, remain on the table to address excessive currency weakness. In addition, a Reuters report suggests that some policymakers within the Bank of Japan (BoJ) see scope for raising interest rates sooner than markets currently expect, potentially as early as April, even though the central bank is widely expected to keep its policy rate unchanged at 0.75% this week.

Against this backdrop of easing inflation in the Eurozone, central bank caution, and political uncertainty in both Europe and Japan, the EUR/JPY cross remains highly sensitive to risk sentiment and official rhetoric. The modest advance toward 183.50 currently reflects a slight advantage for the Euro, while investors remain alert to political and monetary developments that could reignite volatility in the pair.