Key Moments
- EUR/JPY traded roughly flat around 185.00 during Asian hours on Wednesday after modest losses the previous session.
- The OECD projected the Bank of Japan’s short-term policy rate could reach 2% by the end of 2027, while officials consider further near-term hikes.
- ECB policymakers signaled a higher likelihood of additional rate increases amid rising energy costs and geopolitical tensions.
Cross Stays Rangebound as Risk Aversion Caps Euro, Yen Weakness
EUR/JPY showed limited movement during Asian trading on Wednesday, hovering near 185.00 after recording small declines the day before. The cross has been held in check as selling pressure on the Euro, tied to a renewed bout of risk aversion following diminished expectations for peace in the Middle East, has effectively counterbalanced ongoing softness in the Japanese Yen.
Despite the current stability, the Yen could strengthen against major currencies after the Bank of Japan’s April Summary of Opinions indicated policymakers are weighing additional rate hikes as early as their next meeting. The document pointed to inflation risks associated with higher oil prices as a key driver behind that stance.
OECD Outlook for BOJ Policy and Japan’s Fiscal Strategy
The Organisation for Economic Co-operation and Development (OECD) recommended that Japan focus primarily on raising consumption taxes to reinforce government revenues. On the monetary side, the OECD projected that the Bank of Japan will lift short-term policy rates to 2% by the end of 2027.
The assessment also emphasized that the BOJ should retain sufficient flexibility to adjust the pace and maturity structure of its bond purchases if stresses emerge in financial markets or the government bond market.
| Institution | Policy Focus | Key Projection/Guidance |
|---|---|---|
| Bank of Japan (BOJ) | Monetary policy and bond purchases | Short-term policy rates projected to reach 2% by end-2027; flexibility advised on bond-buying pace and maturities |
| OECD | Fiscal recommendations | Advocates primarily using consumption tax hikes to strengthen national revenue |
| European Central Bank (ECB) | Interest rate policy | Officials highlight growing likelihood of rate increases amid energy and geopolitical risks |
ECB Signals Hawkish Tilt Amid Energy and Geopolitical Pressures
The Euro’s outlook also reflects an increasingly hawkish tone from European Central Bank officials. Bundesbank President Joachim Nagel stated on Wednesday that rising energy costs are making an ECB rate hike more probable, tying the shift in outlook to the Iran war.
At the same time, ECB Governing Council member Martin Kocher commented on Monday that there is no justification for postponing rate increases if energy prices do not improve quickly. These remarks have provided some prospective support to the Euro despite the prevailing risk-off mood.
Japan’s Current Account Hits Record, Eurozone Data Ahead
On the macroeconomic front, Japan’s current account surplus climbed to JPY 4,681.5 billion in March, up from JPY 3,625.3 billion in the same month a year earlier. The outcome exceeded market expectations of JPY 3,879 billion and marked the highest level on record.
Market participants are now looking ahead to the release of Eurozone first-quarter 2026 Gross Domestic Product and Employment Change figures later in the day, which could provide fresh direction for the EUR/JPY pair.
| Japan Current Account (JPY billion) | March (Latest) | March (Prior Year) | Market Expectations | Record Status |
|---|---|---|---|---|
| Surplus | 4,681.5 | 3,625.3 | 3,879.0 | Largest on record |
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