EUR/JPY stabilizes below 178.00 as Yen weakens on fiscal stimulus outlook

• EUR/JPY stabilizes under the 178.00 mark after reaching a new multi-year high at 178.15 earlier in the day.
• Expectations of a massive fiscal stimulus in Japan continue to weigh on the Japanese Yen.
• Strong German IFO data support the Euro despite political tensions in France.

EUR/JPY stabilizes on Monday, trading around 177.75 after setting a new multi-year high at 178.15 earlier in the day. The pair remains broadly capped near the psychological 178.00 level, an area tested repeatedly since early October. The Japanese Yen (JPY) continues to weaken as markets anticipate expansionary fiscal policies under new Prime Minister Sanae Takaichi, who is expected to unveil a stimulus package next month that could exceed last year’s ¥13.9 trillion program. This dovish fiscal stance, coupled with expectations that the Bank of Japan (BoJ) will maintain its cautious approach, keeps the JPY under pressure.

Markets widely expect the BoJ to hold its policy rate at 0.5% during Thursday’s meeting, while investors will pay close attention to Governor Kazuo Ueda’s remarks for any guidance on future policy. Despite another rise in Japan’s Services Producer Price Index in September, signs of imminent tightening remain limited, reinforcing the Japanese Yen’s bearish bias.

On the European side, the single currency benefits from improving economic indicators. Germany’s IFO Business Climate Index rose to 88.4 in October, beating expectations and signaling renewed confidence in the Eurozone’s largest economy. However, political uncertainty in France limits the Euro’s (EUR) upside. Socialist Party leader Olivier Faure has threatened to file a no-confidence motion against Prime Minister Sébastien Lecornu’s government if his budget demands are not met, while Moody’s downgraded France’s credit outlook to “negative.”

In this context, the combination of a more expansionary Japanese policy stance and relative stability in Europe continues to support EUR/JPY, although the 178.00 area remains a key resistance level in the short term.

EUR/JPY daily chart. Source: FXStreet.