EUR/JPY hits multi-year highs as risk sentiment weighs on Yen

• Market optimism following the reopening of the US federal government weighs on the safe-haven JPY.
• Weak Eurozone Industrial Production data limits the upside potential for the single currency.
• Comments from the ECB and political pressure on the Bank of Japan fuel volatility on the cross.

EUR/JPY is trading around 179.70 on Thursday at the time of writing, up 0.20% on the day, extending a streak of five consecutive daily gains and reaching a new multi-year high at 179.82 earlier in the day. The cross benefits from a more constructive market environment after the reopening of the US federal government, which revived risk appetite and reduced demand for the Japanese Yen (JPY), traditionally viewed as a safe-haven.

This support contrasts with the release of weaker-than-expected Eurozone Industrial Production figures. Manufacturing activity rose by only 0.2% in September, after a revised 1.1% decline in August, while annual growth held at 1.2%, well below the 2.1% forecast. These softer numbers have capped the Euro’s (EUR) recovery, although the impact remains moderate in a market driven mainly by sentiment flows.

Meanwhile, German inflation data confirms a still contained price trend. The Harmonized Index of Consumer Prices (HICP) came in at 0.3% MoM in October, with the annual rate easing to 2.3%, slightly down from September. The German CPI showed the same monthly increase, with its yearly pace also slowing to 2.3%. This backdrop aligns with the cautious stance of the European Central Bank (ECB). President Christine Lagarde indicated that the rate-cutting cycle is “largely done”, while Governing Council member Isabel Schnabel highlighted persistent services inflation and noted that risks to the inflation outlook remain “tilted slightly to the upside”.

In Japan, the Japanese Yen remains pressured by political priorities. Newly elected Prime Minister Sanae Takaichi continues to promote pro-stimulus policies in line with Abenomics, saying that the Bank of Japan (BoJ) should keep monetary policy aligned with economic and price-stability goals. Her comments dampened expectations of imminent tightening, despite Governor Kazuo Ueda stressing that underlying inflation is gradually moving toward the 2% target and that rising household income continues to support resilient consumption.

The JPY’s prolonged weakness has prompted warnings from Finance Minister Satsuki Katayama, who reiterated she is watching currency movements “with a high sense of urgency”, fueling speculation that authorities may intervene.