Key Moments
- EUR/JPY climbed to new record highs above 185.50, extending a four-day winning streak.
- Meanwhile, BoJ Governor Kazuo Ueda said rate hikes remain possible if wages, prices, and growth follow forecasts.
- At the same time, speculation around looser Japanese fiscal policy and fading ECB rate-cut expectations continues to support the cross.
EUR/JPY Pushes to New All-Time Highs
EUR/JPY extended its rally for a fourth straight session on Wednesday. As a result, the pair set fresh all-time highs and traded near 185.40 during early European hours.
The move reflects renewed weakness in the Japanese Yen. In particular, investors remain focused on Japan’s fiscal outlook and the future path of monetary policy.
Consequently, the softer Yen has lifted the Euro above the 185.50 mark. For now, bullish momentum remains firmly in place.
BoJ Signals Openness to Further Rate Hikes
According to Bloomberg, Bank of Japan Governor Kazuo Ueda said on Wednesday that rate hikes remain possible. However, he stressed that this depends on wages, prices, and growth evolving in line with projections.
In other words, additional tightening is still under consideration. That said, it remains conditional on incoming data.
Still, the path toward higher rates looks challenging. A private survey showed that manufacturing activity has slowed, largely due to ongoing trade frictions.
At the same time, disruptions in tourism-related industries are weighing on services. As a result, the BoJ’s room to raise rates appears limited, despite its cautious openness to normalization.
Domestic Political and Fiscal Concerns Pressure the Yen
Meanwhile, the Yen remains under pressure amid political and fiscal uncertainty. Traders are increasingly focused on reports that Prime Minister Sanae Takaichi may call a snap election next month.
Such a move could help consolidate power and advance expansionary fiscal policies. Notably, February 8 has been cited as a possible date for a Lower House election.
In addition, official concern over the Yen’s weakness is growing. Earlier this week, Finance Minister Satsuki Katayama said she discussed the currency’s “one-sided depreciation” with US Treasury Secretary Scott Bessent.
Those remarks highlight rising unease among policymakers. They also underline worries about the speed and direction of the Yen’s decline.
Euro Benefits as ECB Rate-Cut Cycle Nears a Pause
On the European side, the Euro continues to find support. This comes as markets see the European Central Bank nearing the end of its rate-cut cycle.
Recent data showed Eurozone headline inflation slowed to 2.0% in December. This marked a four-month low and matched the ECB’s target.
At the same time, core inflation eased to 2.3%, slightly below expectations. Together, these figures suggest limited scope for further easing.
As a result, expectations of a policy pause are helping to underpin the Euro. This, in turn, supports EUR/JPY against the lower-yielding Yen.
| Factor | Impact on EUR/JPY |
|---|---|
| BoJ policy stance | Conditional openness to rate hikes, but weak data continues to pressure the Yen. |
| Japan fiscal and political outlook | Snap election speculation and looser fiscal policy weigh on JPY. |
| ECB policy expectations | Signs the rate-cut cycle is ending support the Euro. |
| Eurozone inflation | Cooling price pressures reduce expectations for further ECB easing. |
Japanese Yen: Key Drivers and Market Role
The Japanese Yen is one of the world’s most actively traded currencies. Its value reflects Japan’s economic conditions, but policy factors often dominate.
In particular, traders closely watch Bank of Japan decisions, yield differentials with the US, and overall risk sentiment.
How Bank of Japan Policy Shapes the Yen
The BoJ plays a central role in guiding the Yen. At times, it has even intervened directly in currency markets.
Historically, such actions aimed to weaken the Yen. However, the central bank has remained cautious due to political sensitivities.
Between 2013 and 2024, the BoJ’s ultra-loose stance drove a sharp Yen depreciation. Policy divergence with other central banks was a key factor.
More recently, a gradual exit from extreme accommodation has offered limited support to the currency.
Yield Differentials and Risk Sentiment
Over the past decade, wide yield gaps weighed heavily on the Yen. In particular, higher US yields favored the Dollar over JPY.
However, this gap has begun to narrow. The shift reflects the BoJ’s gradual tightening and rate cuts elsewhere.
Finally, the Yen remains a traditional safe haven. During periods of market stress, investors often seek JPY exposure.
By contrast, in calmer or risk-on environments, the Yen tends to weaken against higher-yielding currencies.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
