Euro Gains Against Yen Amid Japan Election Fallout

Key Moments

EUR/JPY Stabilizes After Early Asian Selling

The Euro (EUR) is holding steadier against the Japanese Yen (JPY) on Monday, with EUR/JPY paring earlier Asian-session losses that followed Japan’s election results. At the time of writing, the pair is trading around 185.75, recovering from an intraday trough close to 184.87.

Support from Sentix Confidence and ECB Rhetoric

The single currency is drawing additional support from an upside surprise in Sentix Investor Confidence. The index improved to 4.2 in February, up from -1.8 in January, offering a modest positive signal for Eurozone sentiment.

This week’s Eurozone data calendar is relatively thin, which leaves traders looking to communications from European Central Bank (ECB) officials for directional cues. Comments from Joachim Nagel, President of the Bundesbank, and Christine Lagarde, President of the ECB, are scheduled for later on Monday and are likely to be scrutinized for any policy hints.

Further ahead, market participants are preparing for Friday’s releases of preliminary Employment Change (Q4) and seasonally adjusted Gross Domestic Product (Q4), which could influence expectations for the region’s growth outlook and monetary stance.

ECB Policy Outlook: “50/50” on the Next Move

Earlier on Monday, Gediminas Šimkus, a member of the ECB Governing Council, commented that current interest rates are at neutral levels, with economic growth running near its potential, according to Reuters.

Šimkus also stated that the chances of the next policy adjustment being either a rate increase or a rate reduction are evenly balanced, characterizing the situation as a “50/50” call.

Japanese Election Outcome Lifts the Yen

On the other side of the cross, the Yen remains strongly supported across major pairs after Japan’s election outcome. Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party (LDP) achieved a historic landslide victory, a result that has reinforced demand for the Japanese currency.

Markets interpret the decisive win as broadly favorable for domestic demand. However, investors are also focused on the implications for Japan’s already substantial public-debt load. Concerns have persisted after Takaichi reiterated her intention to suspend the 8% consumption tax on food for two years and to introduce targeted tax cuts and fiscal spending measures aimed at supporting households and consumption.

Takaichi attempted to calm market nerves by stating that she would not issue new debt to finance the suspension of the sales tax on food. At the same time, she recognized the issue of the Yen’s pronounced weakness and said she wants to “create an economy that can withstand FX changes.”

Japan Data: Labor Earnings and Upcoming PPI

Japan’s latest wage figures showed Labour Cash Earnings rising 2.4% year-on-year in December, easing from 1.7% in November and coming in below market expectations of 3.0%. The softer-than-anticipated data add another layer for traders to consider as they assess the policy and growth backdrop in Japan.

Attention is now turning to the Producer Price Index (PPI) report scheduled for Thursday, which will provide further insight into input cost dynamics and may influence expectations for future policy discussions.

Key Data and Events Snapshot