Euro-Yen Holds Near 184.70 as Central Bank Outlooks Clash

Key Moments

EUR/JPY traded around 184.70 on Wednesday, down 0.03% as conflicting BoJ and ECB rate expectations capped direction.
Markets priced roughly an 80% probability of a Bank of Japan rate hike as soon as September, while Eurozone inflation data bolstered ECB tightening bets.
Standard Chartered projected a higher BoJ terminal rate of 1.75% in this cycle and flagged potential FX intervention as USD/JPY trades near 160.

EUR/JPY Stabilizes Amid Diverging Policy Expectations

EUR/JPY traded around 184.70 on Wednesday at the time of writing, slipping 0.03% on the day. The cross remained rangebound as support for the Japanese Yen (JPY) from rising Bank of Japan (BoJ) tightening expectations clashed with underlying Euro (EUR) strength on the back of anticipated further European Central Bank (ECB) rate hikes.

BoJ Outlook Supports Yen, With Inflation Data in Focus

On the Japanese side, investors have been increasing wagers on additional BoJ tightening in the months ahead. According to Reuters, the central bank is considering a potential interest rate increase as early as September, and overnight index swaps are assigning roughly an 80% probability to such a move. This repricing has been lending support to the Yen and curbing upside in EUR/JPY for the moment.

Market participants are now looking toward Japan’s National Consumer Price Index (CPI) release on Friday. If inflation remains above the BoJ’s 2% target, it could reinforce expectations of further policy normalization and provide additional backing for the Yen.

At the same time, concerns over Japan’s fiscal outlook are acting as a counterweight to the currency’s gains. Japanese Prime Minister Sanae Takaichi has proposed cutting the consumption tax on food to 1% for two years, without yet identifying replacement revenue to offset the measure. This has raised questions about the country’s public finances and is seen as a potential drag on Yen appreciation.

Euro Draws Support From Firm Eurozone Inflation

The Euro has remained underpinned by the latest Eurozone inflation figures. The Harmonized Index of Consumer Prices (HICP) increased 2.9% year-on-year in July, up from 2.8% in June, in line with the preliminary estimate and still above the ECB’s 2% target. Core inflation also picked up, rising to 2.5% from 2.4%.

These data points have strengthened expectations that the ECB will extend its rate-hiking phase. Markets are currently pricing in a 96% chance of a 25-basis-point increase in September, according to the ECB Watch tool, which would lift the policy rate to 2.5%.

ECB Chief Economist Philip Lane said on Tuesday that Eurozone inflation, at around 3%, remains too high, even if the level appears modest compared with previous peaks. His remarks, together with the inflation readings, have helped the Euro resist Yen strength and kept EUR/JPY hovering near 184.70.

Standard Chartered Brings Forward BoJ Hike Call

Analysts at Standard Chartered have revised their expectations for the BoJ, moving forward their anticipated start to the tightening cycle. They now expect the central bank “to hike by 25bps on 18 September from October previously.” The bank also projects a more prolonged adjustment, stating “we now expect two more 25bps hikes after September, in Q1- and Q3-2027, from 25bps hikes in October and Q2-2027,” leading to “a higher terminal rate of 1.75% in this rate-hike cycle from 1.5% previously.” However, they added that “we doubt the BoJ can ‘out-hawk’ the market, which is pricing in a terminal rate of c.2.0% by end-2027.”

On the currency front, Standard Chartered maintained its view that “we do not rule out further FX intervention in the interim as USD/JPY trades close to 160; we still see USD/JPY at 158 by end-Q3 and 160 by end-Q4 as yield-insensitive capital outflows weigh on the JPY.” The bank also observed that “the recent Japan-US coordination to stabilise the JPY highlighted a shared concern about the inflationary consequences of excessive currency weakness,” highlighting the policy sensitivity around the exchange rate.

They further noted that “risks to our view include any further hawkish BoJ surprises in the near term, signs of repatriation by local investors and PM Takaichi pivoting away from her preference for dovish policy to boost growth.”

Japanese Yen Performance Against Major Currencies

The Japanese Yen’s moves against other major currencies have been mixed, with notable strength versus the Australian Dollar. The table below shows the percentage changes of the Japanese Yen (JPY) against the listed majors today.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD	—	-0.26%	-0.17%	-0.32%	-0.20%	0.09%	-0.10%	-0.25%
EUR	0.26%	—	0.08%	-0.07%	0.07%	0.34%	0.14%	0.00%
GBP	0.17%	-0.08%	—	-0.13%	-0.01%	0.29%	0.08%	-0.08%
JPY	0.32%	0.07%	0.13%	—	0.11%	0.39%	0.20%	0.04%
CAD	0.20%	-0.07%	0.01%	-0.11%	—	0.28%	0.08%	-0.07%
AUD	-0.09%	-0.34%	-0.29%	-0.39%	-0.28%	—	-0.19%	-0.33%
NZD	0.10%	-0.14%	-0.08%	-0.20%	-0.08%	0.19%	—	-0.14%
CHF	0.25%	-0.01%	0.08%	-0.04%	0.07%	0.33%	0.14%	—

The heat map represents percentage changes between major currencies. The base currency is taken from the left column, and the quote currency from the top row. For instance, choosing the Japanese Yen as the base currency from the left and moving to the US Dollar column shows the percentage change for JPY (base)/USD (quote).