EUR/JPY falls to near 159.00 amid rising wages in Japan

• EUR/JPY depreciates as rising wages bolster the odds of the BoJ rate hikes again.
• Japan’s Labor Cash Earnings jumped 4.8% YoY in December, rising from 3.9% in November.
• The Euro remains under pressure as investors brace for a potential Trump's tariff targeting the Eurozone.

EUR/JPY retreats after gains in the previous session, trading near 159.00 during Asian hours on Wednesday. The decline of the EUR/JPY cross is driven by a stronger Japanese Yen (JPY), supported by rising wages in Japan and growing expectations that the Bank of Japan (BoJ) will further hike interest rates.

Japan’s Labor Cash Earnings surged 4.8% year-on-year in December, up from 3.9% in November, exceeding the market forecast of 3.8%. This marks the highest wage growth in nearly three decades. Additionally, inflation-adjusted real wages, which indicate consumer purchasing power, increased by 0.6% in December, recording a second consecutive month of positive growth.

More on data, the Jibun Bank Composite Purchasing Managers’ Index (PMI) rose to 51.1 in January 2025 from 50.5 in December, signaling the third straight month of expansion in private sector activity. Meanwhile, the Services PMI was revised upward to 53.0 from a preliminary estimate of 52.7, following a final reading of 50.9 in the prior month.

EUR/JPY may face further downside as the Japanese Yen finds additional support from safe-haven flows amid escalating US-China trade tensions. On Wednesday, the US Customs and Border Protection announced that new tariffs of 10% would be applied to both Hong Kong and mainland China.

The Euro (EUR) remains under pressure as investors anticipate potential tariff threats from US President Donald Trump against the Eurozone. Over the weekend, Trump stated that he would “definitely” impose tariffs, accusing the bloc of unfair trade practices by not purchasing enough US cars and farm products. He claimed that the EU “takes almost nothing, and we take everything from them.”

In response, French President Emmanuel Macron warned that the European Union (EU) would retaliate if its interests were threatened. “If our commercial interests are attacked, Europe, as a true power, will have to make itself respected and therefore react,” Macron stated, as reported by The Guardian.