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13/05/26
7
EUR/JPY Steady Near 185 as BoJ and ECB Policy Expectations Offset Risk Aversion
EUR/JPY traded little changed near 185 during Asian hours on Wednesday, after a modest decline in the previous session. The pair remained balanced as weakness in the euro, driven by renewed caution in global markets, offset softness in the yen. Risk sentiment deteriorated after hopes for a breakthrough in Middle East tensions faded, supporting demand for the Japanese currency but also weighing on the common currency.
The yen’s outlook is not entirely negative. The Bank of Japan’s April Summary of Opinions showed that policymakers are still considering additional rate increases as soon as the next meeting, with inflation risks amplified by higher oil prices. The OECD also said Japan should lean more heavily on consumption tax increases to strengthen public finances. In addition, the OECD expects the Bank of Japan to lift short-term policy rates to 2% by the end of 2027, while maintaining flexibility in its bond-buying program if market conditions become unstable.
At the same time, the euro is drawing some support from a more hawkish tone at the European Central Bank. Bundesbank President Joachim Nagel indicated that rising energy costs, linked to the conflict involving Iran, are making an interest rate hike more likely. ECB Governing Council member Martin Kocher also said policymakers should not delay action if energy prices do not ease soon.
Recent Japanese data added a constructive note for the yen. The current account surplus rose to JPY 4,682 billion in March from JPY 3,625 billion a year earlier, beating expectations and marking the largest amount on record. Market participants now look ahead to first-quarter 2026 eurozone GDP and employment figures, which may provide a clearer guide for the pair’s next direction.
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