EUR/JPY advances as Yen weakens amid doubts over BoJ tightening

• EUR/JPY rises 0.60% on Tuesday, supported by a weakening Japanese currency.
• Comments from Japan’s Prime Minister revive doubts over further rate hikes in Japan.
• German inflation expectations remain close to the ECB target, limiting the impact on the monetary policy outlook.

EUR/JPY trades around 183.50 on Tuesday at the time of writing, up 0.60% on the day, mainly benefiting from a weakening Japanese Yen (JPY). The pair’s upward move is driven more by the softness of the Japanese currency than by intrinsic strength in the Euro (EUR).

According to the Mainichi Shimbun newspaper, Japanese Prime Minister Sanae Takaichi reportedly expressed concerns during a February 16 meeting with Bank of Japan (BoJ) Governor Kazuo Ueda about additional interest rate hikes in the near term. This potential opposition to further tightening could complicate the central bank’s normalization timeline, as coordination with the strengthened administration becomes more sensitive. For his part, Kazuo Ueda stated that the discussion broadly covered economic and financial developments, adding that no specific monetary policy requests were made.

These developments fuel speculation that the Bank of Japan may adopt a more cautious approach in continuing its tightening cycle. This outlook weighs on the Japanese Yen, which loses relative appeal against major peers, mechanically supporting the advance in EUR/JPY.

Meanwhile, Japan’s Finance Minister Satsuki Katayama said that the government will carefully review the US Supreme Court’s ruling on tariffs, while confirming the steady implementation of Japan’s investment package directed toward the United States (US). She also noted that US tariffs on automobiles remain in place, maintaining a degree of uncertainty on the trade front.

On the European side, market attention now turns to Friday’s release of Germany’s preliminary Harmonized Index of Consumer Prices (HICP) for February. The data is expected to show a 0.5% MoM increase after a 0.1% decline in January, while annual inflation is seen unchanged at 2.1%. However, the potential impact of these figures on the monetary policy outlook is likely to remain limited, as price pressures are already evolving close to the 2% target.

European Central Bank (ECB) President Christine Lagarde also indicated on Monday, during a conference, that no adjustment to monetary policy appears necessary under the current circumstances, stating that the Eurozone is “in a good place.” This message suggests a wait-and-see stance from the central bank, leaving the near-term dynamics of EUR/JPY largely dependent on shifts in expectations surrounding Bank of Japan policy and the performance of the Japanese Yen.