Key Moments
- EUR/JPY rebounded on Thursday, hitting a fresh record high of 186.75 after recovering from prior-session losses.
- Ongoing concerns over Japan’s fiscal outlook and political risks continued to weigh on the Yen ahead of the BoJ decision.
- The Euro found support from stronger risk sentiment, easing EU-US tensions, and signs of modest German GDP growth.
EUR/JPY Extends Rally on Persistent Yen Weakness
EUR/JPY climbed sharply on Thursday, reversing Wednesday’s decline and reaching a new record high at 186.75. During the European session, the pair traded near 185.75 as the Japanese Yen softened and risk appetite improved.
Meanwhile, a more constructive global backdrop supported the Euro. Investors also shifted focus to Japan’s fiscal path and the Bank of Japan’s Monetary Policy Decision due on Friday.
Fiscal and Political Concerns Pressure the Yen
The Japanese Yen weakened against major peers as easing US-Europe trade tensions reduced demand for safe-haven assets. At the same time, concerns over Japan’s public finances remained in focus.
In addition, investors are watching Japan’s February 8 snap election closely. A stronger parliamentary position for Prime Minister Sanae Takaichi could allow further stimulus and tax cuts, adding pressure to an already strained fiscal outlook.
BoJ Policy Decision Takes Center Stage
The Bank of Japan began its two-day policy meeting on Thursday. After raising rates to 0.75% in December, the highest level in 30 years, the central bank is widely expected to keep policy unchanged.
However, markets will closely analyze the BoJ’s guidance. If officials fail to signal further tightening, Yen weakness could intensify.
Euro Supported by Risk Mood and German Data
The Euro kept a mild bullish tone after EUR/USD rebounded following Trump’s Davos remarks. Moreover, the Bundesbank’s latest monthly report pointed to moderate German GDP growth in the first quarter.
As a result, the outlook for the Eurozone’s largest economy improved slightly, lending additional support to the common currency.
Key EUR/JPY Levels and Policy Context
| Item | Detail |
|---|---|
| EUR/JPY intraday high (Thursday, Europe) | 185.75 |
| Record high | 186.75 |
| BoJ policy rate | 0.75% |
| Japan snap election | February 8 |
Bank of Japan: Policy Path and Yen Impact
The Bank of Japan is responsible for setting monetary policy and maintaining price stability. Its inflation target stands at around 2%.
In 2013, the BoJ adopted an ultra-loose policy to revive growth and lift inflation. This approach included large-scale asset purchases under Quantitative and Qualitative Easing. Later, the bank introduced negative rates and yield curve control.
These policies weakened the Yen over time, especially during 2022 and 2023, as other major central banks raised rates aggressively. The wide policy gap pushed the Yen lower against its peers.
In March 2024, the BoJ began retreating from its ultra-loose stance. This shift helped stabilize the Yen temporarily. Still, rising energy prices and stronger wage growth have kept inflation above the BoJ’s target.
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