EUR/JPY slips as US-Iran talks collapse, higher energy prices boost BoJ tightening bets

• EUR/JPY trades around 186.65 on Monday, down 0.08% on the day amid rising geopolitical tensions.
• The failure of talks between the United States and Iran boosts risk aversion and weighs on the Euro.
• Higher energy prices reinforce expectations of monetary tightening by the Bank of Japan.

EUR/JPY trades around 186.65 on Monday, down 0.08% at the time of writing, as risk aversion increases following the failure of talks between the United States (US) and Iran. The pressure on the cross mainly stems from weakness in the Euro (EUR), as heightened geopolitical tensions prompt investors to reduce exposure to risk-sensitive assets.

Negotiations between Washington and Tehran, held in Islamabad, ended without an agreement after more than 21 hours of discussions. US Vice President JD Vance confirmed the deadlock, while US President Donald Trump announced that the United States would begin blockading ships entering or leaving the Strait of Hormuz. The US Central Command also stated that operations targeting maritime traffic linked to Iranian ports would begin on Monday, further increasing market concerns.

On the European monetary front, expectations of tightening by the European Central Bank (ECB) remain in place despite the geopolitical uncertainty. Economists at Societe Generale argue that upside risks to core inflation justify bringing forward the rate-hike cycle. They now expect two 25-basis-point increases in June and September to move monetary policy toward a neutral stance.

On the Japanese side, weakness in the Japanese Yen (JPY) remains limited by concerns about potential stagflation amid rising energy prices. This environment strengthens expectations of a near-term tightening of monetary policy by the Bank of Japan (BoJ). The central bank is scheduled to deliver its next policy decision on April 28, when officials will assess whether elevated global energy and commodity prices justify a rate hike.

Japan’s 10-year government bond yield rose to around 2.47%, supported by higher Oil prices after the breakdown of talks between Washington and Tehran. Meanwhile, the Sakura Report published after the April 6 branch managers’ meeting showed that all nine regions of the country consider their economies to be either “recovering moderately”, “picking up”, or “picking up moderately”.

The economic calendar remains relatively light at the start of the week, leaving geopolitical developments in the Middle East at the center of market attention. Investors will also watch remarks from ECB President Christine Lagarde on Tuesday, which could provide further clues about the monetary policy decision expected on April 30.