EUR/JPY gains as Yen softens on risk sentiment, Euro steadies ahead of ECB speeches

• The Japanese Yen weakens slightly amid calmer risk sentiment and a pause in safe-haven flows.
• The Euro holds firm ahead of speeches from ECB President Christine Lagarde and Fed officials.
• Uncertainty surrounding US-China trade relations continues to cap market optimism.

EUR/JPY trades higher around 176.30, up 0.20% for the day on Thursday at the time of writing, as a modest rebound in risk appetite limits demand for the Japanese Yen (JPY), while the pair benefits from a mild recovery in the Euro (EUR).

In the absence of major economic data releases, investors continue to assess trade developments between the United States (US) and China. US Treasury Secretary Scott Bessent said on Wednesday that Washington does not seek to decouple from Beijing but warned that China is attempting to erect new trade barriers. “The US has lots of levers that it can pull on China trade,” he added, according to Reuters, hinting at potential policy responses if tensions persist.

On the political front, investors are monitoring Japan’s ongoing leadership uncertainty following the Liberal Democratic Party’s (LDP) split with the Komeito. The potential appointment of Sanae Takaichi as Japan’s first female Prime Minister, known for her support of expansionary Abenomics-style policies, keeps expectations alive for continued fiscal stimulus and an accommodative monetary stance from the Bank of Japan (BoJ).

According to OCBC, “political uncertainty may delay the BoJ’s policy normalization, even though macro conditions justify a rate hike.”

In Europe, attention turns to the International Monetary Fund (IMF) debate on “Global Economy: Shaping Economic Policies in the Face of Disruptive Change,” where European Central Bank (ECB) President Christine Lagarde will participate later in the day. Markets will look for any hints regarding the central bank’s outlook amid recent signs that inflation pressures are easing.

Meanwhile, European political tensions remain in focus. In France, the first motion of no-confidence against Prime Minister Sébastien Lecornu was rejected by lawmakers, while a second vote is scheduled later in the day. An event closely watched by investors given its potential implications for Eurozone political stability.

At the same time, ECB Governing Council member Pierre Wunsch said on Thursday that “the probability of another rate cut has been receding,” while fellow policymaker Martin Kocher noted that the ECB is “at or very near the end of the rate-cutting cycle”, according to Reuters.

Overall, with geopolitical tensions contained and no major surprises expected from central bank speakers, the EUR/JPY pair holds steady above 176.00, reflecting a fragile but persistent improvement in market sentiment.