The EUR/JPY pair traded steady around 178.30 on Friday, consolidating near Thursday’s all-time high of 178.82. The cross remains supported by a favorable interest rate differential between the Euro and the Yen, as markets weigh diverging policy paths between the European Central Bank (ECB) and the Bank of Japan (BoJ).
Yen Softens as Fiscal Stimulus Expectations Rise
The Japanese Yen (JPY) initially found mild support following upbeat inflation data, with Tokyo’s Consumer Price Index (CPI) rising 2.8% year-on-year in October, exceeding forecasts and staying well above the BoJ’s 2% target.
However, the currency’s recovery was short-lived as speculation intensified that newly appointed Prime Minister Sanae Takaichi will pursue large-scale fiscal spending, potentially delaying monetary tightening efforts. Expectations of such expansionary policies have weighed on the Yen, despite stronger inflation and resilient industrial activity.
At Thursday’s policy meeting, the Bank of Japan kept its benchmark rate unchanged at 0.5%, though two board members voted in favor of a modest hike to 0.75%. Governor Kazuo Ueda reiterated that decisions would remain data-dependent, with no preset timeline for policy normalization — reinforcing expectations that Japan’s exit from ultra-loose policy could be postponed until later this year.
ECB Holds Policy Steady, Supporting the Euro
Meanwhile, the European Central Bank opted to hold interest rates at 2% for a third consecutive meeting on Thursday. The ECB described its policy stance as “well-calibrated,” citing a resilient Eurozone economy and inflation that continues to edge closer to the bank’s medium-term target.
The latest Harmonized Index of Consumer Prices (HICP) eased slightly to 2.1% year-on-year in October, while core inflation came in at 2.4%, just above expectations. The ECB’s steady approach has underpinned the Euro, keeping EUR/JPY anchored near record highs.
Policy Divergence Keeps EUR/JPY Bullish
The stark contrast between a cautious BoJ and a confident ECB continues to favor the Euro against the Yen. While the pair shows signs of consolidation following its recent rally, the broader trend remains decisively bullish, with strong policy divergence maintaining upward momentum.
Euro Performance Snapshot
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|
| Change (%) | +0.04 | +0.15 | +0.05 | +0.20 | +0.24 | +0.34 | +0.08 |
The Euro was the strongest against the New Zealand Dollar (NZD) on Friday, while holding steady versus most other major peers.
Outlook
With the ECB maintaining a stable policy stance and Japan expected to prioritize fiscal support over monetary tightening, the EUR/JPY pair is likely to remain elevated. Unless the BoJ signals a meaningful shift in its policy trajectory, the cross could continue to test — or even surpass — its record highs in the sessions ahead.
