Introduction to EUR/JPY Currency Pair

The EUR/JPY currency pair has been trading subdued, with the Japanese Yen (JPY) receiving support from the growing acceptance that the Bank of Japan (BoJ) will stick to its policy normalization path. The currency cross is currently trading around 183.00 during the Asian hours on Thursday. This development comes after BoJ Governor Kazuo Ueda stated that the BoJ will continue raising rates if economic and price developments move in line with forecasts.

Bank of Japan’s Policy Normalization

Ueda further stated that adjusting the degree of monetary support will help the economy achieve sustained growth and that wages and prices are likely to rise together moderately. However, Japan’s Labor Cash Earnings rose just 0.5% year-over-year (YoY) in November 2025, sharply slowing from October’s 2.5% gain and missing expectations of 2.3%. The weakest wage growth in nearly four years was driven by a 17% annual drop in bonus payments, while real wages fell 2.8% as inflation outpaced pay growth, complicating the Bank of Japan’s tightening plans.

Geopolitical Tensions and Economic Impact

However, the Japanese Yen may come under pressure as traders turn cautious amid rising tensions between Japan and China, after Beijing banned exports of certain rare earth elements and other items to Japan with potential military uses. Relations have deteriorated sharply since Japanese Prime Minister Sanae Takaichi said a Chinese invasion of Taiwan would pose a threat to Japan’s survival and could prompt a military response from Tokyo, according to a CNN report.

Economic Data and Inflationary Pressures

Traders will likely observe the medium-impact data, including Germany’s Factory Orders, the Eurozone’s Business Climate, and the Unemployment Rate data later in the day. Eurostat published the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for December on Wednesday, which climbed at an annualized pace of 2% in December, as expected, slower than 2.1% in November. On a monthly basis, inflationary pressures grew by 0.2% after deflating 0.3% in the previous month.

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%. The Bank of Japan embarked on an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment.

Policy Impact on the Yen

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Conclusion and Further Reading