EUR/JPY rises above 182.50 despite BoJ rate hike bets

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EUR/JPY may fall as the Japanese Yen could gain on expectations of continued BoJ policy tightening.
Japan’s Core Machinery Orders surged 19.1% MoM; orders rose 16.8% YoY, beating forecasts.
The Financial Times reports ECB President Christine Lagarde may step down before October 2027.

EUR/JPY extends its gains for the second successive session, trading around 182.80 during the Asian hours on Thursday. The upside of the currency cross could be restrained as the Japanese Yen (JPY) may find support from expectations that the Bank of Japan (BoJ) will continue tightening policy. According to Reuters, markets are pricing in nearly an 80% chance of a BoJ rate hike in April 2026. Still, policymakers are likely to assess upcoming data before deciding on further tightening.

Japan’s Core Machinery Orders jumped 19.1% month-over-month (MoM) to ¥1,052.5 billion in December 2025, rebounding from an 11% decline in November and far exceeding expectations of a 4.5% rise. The surge, the strongest in over a decade, was driven by large, one-off orders from refineries and nuclear fuel producers. On annual basis, private-sector orders rose 16.8% in December, reversing November’s 6.4% contraction and beating forecasts for a 3.9% increase.

The Financial Times reported that European Central Bank (ECB) President Christine Lagarde may step down before her scheduled retirement in October 2027. The report said Lagarde aims to give French President Emmanuel Macron and German Chancellor Friedrich Merz time to agree on her successor, though no timeline was specified.

Looking ahead, traders will focus on Japan’s National Consumer Price Index (CPI) data due Friday. Focus will shift toward preliminary Purchasing Managers' Index (PMI) readings from Germany and the Eurozone.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

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.

How do Bank of Japan’s decisions influence the Japanese Yen?

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.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

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.