EUR/JPY stabilizes as Euro gains on geopolitical optimism, intervention fears persist

• EUR/JPY trades around 182.40 on Monday, holding steady after two consecutive losing days.
• The Euro gains support after reports suggesting a potential de-escalation in the US-Israel conflict with Iran.
• Expectations surrounding the European Central Bank meeting and risks of Japanese intervention limit further upside.

EUR/JPY trades around 182.40 on Monday at the time of writing, virtually unchanged on the day after two consecutive days of decline. The cross stabilizes as the Euro (EUR) finds some support against its major peers.

The single currency benefits from improved geopolitical sentiment after The Guardian reported that US Energy Secretary Chris Wright expects the war between the United States (US), Israel and Iran to end within “the next few weeks”. Such a development could allow Oil supplies to normalize and help ease pressure on global energy prices.

Despite this support, the outlook for the Euro remains mixed. The recent surge in energy prices highlights the Eurozone’s vulnerability to energy shocks, which could weigh on the region’s trade balance. In this context, money markets have significantly revised their expectations and now price in two interest rate hikes from the European Central Bank (ECB) this year, a sharp shift from last month when no policy moves were anticipated.

Investors are now focusing on the ECB’s upcoming policy meeting scheduled for March 19. ECB President Christine Lagarde is expected to outline how the central bank intends to address inflationary pressures linked to the conflict in the Middle East. Markets are currently pricing in two 25-basis-point rate hikes, potentially in June and September.

On the geopolitical front, French President Emmanuel Macron said on Sunday that freedom of navigation through the Strait of Hormuz must be restored as soon as possible. He also urged Iran’s president to immediately halt what he described as unacceptable attacks against several countries in the region, including Lebanon and Iraq.

Meanwhile, EUR/JPY could face additional headwinds from renewed support for the Japanese Yen (JPY). Japanese authorities have strengthened their warnings regarding excessive currency moves. Finance Minister Satsuki Katayama said the government is closely monitoring foreign exchange developments and stands ready to take strong action if necessary.

Over the weekend, Japan and South Korea also issued a rare joint statement expressing serious concern over the rapid depreciation of the Japanese Yen and the Korean Won (KRW). Tokyo confirmed that it is in closer contact than usual with US authorities regarding currency market developments.

The Bank of Japan (BoJ) is widely expected to keep its policy rate unchanged at 0.75% at its upcoming meeting while leaving the door open for further tightening. However, amid rising Oil prices linked to the conflict with Iran, some analysts believe a surprise rate hike cannot be completely ruled out. Investors will pay close attention to comments from BoJ Governor Kazuo Ueda to assess how higher energy prices could affect inflation and economic growth in Japan.