20 Feb 2025

EUR/JPY has declined to approximately 156.55 during the early European session on Thursday, reflecting a decrease of 0.85% for the day. The Japanese Yen (JPY) has gained strength due to heightened expectations for further interest rate increases by the Bank of Japan (BoJ). Investors are also awaiting the release of the German Producer Price Index (PPI) for January, which is scheduled for later today.

Recent economic data from Japan has bolstered the argument for the BoJ to raise interest rates, with GDP growth exceeding forecasts and nominal wages experiencing their most significant increase in nearly thirty years. A Reuters survey indicates that over 65% of economists believe the BoJ may raise rates to 0.75% in the third quarter, with anticipated wage growth in this year's labor negotiations projected at 5.00%, up from 4.75% in the January survey.

Hajime Takata, a member of the BoJ Board, stated on Wednesday the importance of considering gradual rate hikes, while acknowledging that Japan's bond yields are aligning with market perceptions of the economy. The increasing speculation regarding a potential rate hike by the BoJ in the near future is supporting the JPY and creating challenges for the EUR/JPY pair.

On the Eurozone side, concerns regarding tariffs from U.S. President Donald Trump may negatively impact the Euro. On Tuesday, Trump indicated that he is likely to impose tariffs of approximately 25% on foreign automobiles, with semiconductor chips and pharmaceuticals also facing increased duties. Although Trump did not specify a timeline for the implementation of these tariffs, he mentioned that some could take effect by April 2.

Furthermore, the divergence in monetary policy between the BoJ and the European Central Bank (ECB) continues to exert pressure on the Euro. Market expectations suggest an additional 75 basis points of cuts from the ECB over the next year, potentially lowering the policy rate to 2.00%.