EUR/JPY ticks up, nearing 184.00 amid generalised Yen weakness

A hesitant BoJ has hammered the Yen in 2025

The hesitant pace of the Bank of Japan’s (BoJ) monetary normalisation cycle, combined with concerns about Trump’s tariffs on Japan’s export-oriented economy, and Prime Minister Sanae Takaichi’s fiscal largesse, has created a perfect storm for the Yen, which has been the weakest major performer in 2025.

The Summary of Opinions of the latest BoJ meeting reaffirmed the bank’s commitment to further monetary tightening. Still, the rate hike calendar remains vague, and the government is likely to oppose anything other than a very gradual monetary normalisation cycle. In this context, Yen upside attempts are likely to remain limited.

In Europe, the European Central Bank is giving signs that the monetary easing cycle is over and that the next move will be a hike, probably in the second half of next year. This has given some impulse to the Euro over the last few weeks.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.