EUR/JPY weakens below 184.00 as BoJ signals further tightening
- EUR/JPY weakens to near 183.80 in Monday’s early European session.
- BoJ policymakers debated the need for more rate hikes even after the December move.
- Expectations that the current cycle of ECB interest rate cuts is coming to an end might cap the EUR’s downside.
The EUR/JPY cross attracts some sellers to around 183.80 during the early European session on Monday. The Japanese Yen (JPY) strengthens against the Euro (EUR) as the Bank of Japan’s (BoJ) Summary of Opinions from the December policy meeting reinforced expectations of continued tightening in 2026.
The BoJ raised its policy rate to 0.75% from 0.50% at its December policy meeting. A summary of opinions released early Monday showed that some board members see the need for further rate increases in the near future. This, in turn, provides some support to the JPY and acts as a headwind for the cross. Members also stated that the weaker JPY and rising long-term interest rates were due in part to the BoJ's policy rate being too low relative to inflation.
On the Euro’s front, the European Central Bank (ECB) held interest rates steady earlier this month and hinted they would likely remain so for some time. ECB President Christine Lagarde noted that the central bank cannot provide forward guidance on future rate moves due to high uncertainty, emphasizing a data-dependent, meeting-by-meeting approach.
The money markets have priced in for a 25 bps interest rate cut by the ECB in February 2026, currently remaining below 10%. Signals that the ECB rate cut cycle is ending might help limit the EUR’s losses in the near term.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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