• EUR/JPY extends its advance as the Japanese Yen weakens ahead of the Bank of Japan decision.
• Japanese authorities remain on alert amid rising volatility, limiting downside risks for the Japanese Yen.
• The Euro finds support from easing Oil prices, improving market sentiment.

EUR/JPY trades around 183.25 on Tuesday at the time of writing, up 0.14% on the day, extending its gains for a second consecutive session. The cross is supported by the weakness of the Japanese Yen (JPY), as markets widely expect the Bank of Japan (BoJ) to keep its policy rate unchanged at 0.75% at Thursday’s meeting.

However, downside pressure on the Japanese currency could remain limited. Japan’s Finance Minister Satsuki Katayama warned that financial market volatility is increasing and stated that authorities stand ready to act if necessary, including in the foreign exchange market. This intervention risk may help stabilize the JPY.

At the same time, BoJ Governor Kazuo Ueda noted that underlying inflation is gradually moving toward the central bank’s 2% target, adding that policy will be guided appropriately to ensure stable and sustainable price growth. Despite these relatively constructive remarks, investors still expect the BoJ to hold rates steady this week while keeping the door open for future tightening.

On the European side, the Euro (EUR) is supported by a decline in Oil prices, which helps improve the economic outlook for the Eurozone, given its strong reliance on energy imports. Crude prices eased as several tankers safely crossed the Strait of Hormuz and major economies signaled potential releases of strategic reserves to offset supply risks.

Attention also turns to the European Central Bank (ECB), which is expected to leave interest rates unchanged at Thursday’s meeting, with the deposit rate seen at 2% and the main refinancing rate at 2.15%. Nevertheless, money markets continue to price in a potential rate hike by mid-year, as some policymakers, including Peter Kazimir, highlight upside inflation risks linked to geopolitical tensions.

In this context, EUR/JPY dynamics remain driven by the divergence between a cautious Bank of Japan and a European Central Bank that could turn more restrictive over time, while also reacting to shifts in global risk sentiment.