The EUR/JPY pair is seeing follow-through selling for the second consecutive day, dropping to its lowest level since October 4 during the Asian trading session on Friday. While spot prices briefly rebounded, they remain in the 161.65-161.70 range, still reflecting a decline driven by a stronger Japanese Yen (JPY).
The recent weakness in the shared currency comes amid ongoing expectations of aggressive interest rate cuts by the European Central Bank (ECB), as concerns over the Eurozone’s economic outlook persist. Market participants are predicting a 25 basis point cut to the ECB’s Deposit Facility Rate in December, followed by a cumulative 100 basis points of rate cuts in 2025. Additionally, fears over potential tariffs from US President-elect Donald Trump, which could negatively affect economic growth in the Eurozone, are weighing on the Euro, further pressuring the EUR/JPY cross.
On the other hand, the Japanese Yen is supported by hawkish signals from the Bank of Japan (BoJ). Governor Kazuo Ueda stated on Thursday that the central bank is closely monitoring the impact of recent foreign exchange movements on Japan’s economic and price outlook. Data released on Friday showed that all three measures of Japan’s Consumer Price Index (CPI) remain above the BoJ’s 2% target, leaving room for further interest rate hikes, possibly as soon as December. This, along with escalating geopolitical tensions from the Russia-Ukraine conflict, has bolstered demand for the safe-haven Yen.
While the Yen remains firm, there are concerns that political uncertainty in Japan could delay the BoJ’s planned rate hikes, limiting bullish momentum for the currency. Moreover, a prevailing risk-on market sentiment has capped the JPY’s gains, which in turn helps limit the downside for the EUR/JPY pair.
Looking ahead, the release of the Eurozone’s flash PMI data will provide further insights into the region’s economic performance and could influence the shared currency. Additionally, geopolitical developments will continue to drive demand for the Yen, adding further complexity to the EUR/JPY outlook.
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