EUR/JPY halted its four-day winning streak, trading around 184.20 during European hours on Thursday, as the Japanese Yen drew support from rising expectations of a near-term rate hike by the Bank of Japan (BoJ) [1]. These expectations are being fueled by an oil-led inflation shock tied to the Middle East conflict, with global central banks signaling readiness to tighten policy amid persistent price pressures [1].
While the BoJ kept its policy rate unchanged in March, Governor Kazuo Ueda left open the possibility of a move in April. Japanese Government Bond yields rose, with the 10-year yield climbing to 2.27% on Thursday, snapping a two-day decline. Shorter maturities also advanced, with 2-year yields hitting three-decade highs and 5-year yields reaching record levels, indicating tightening financial conditions and growing expectations of higher interest rates [1].
The BoJ's January Meeting Minutes revealed that policymakers agreed further rate hikes would be appropriate if economic and inflation projections are met, with most members favoring a flexible approach and decisions at each meeting rather than a fixed pace of tightening [1].
Looking ahead, the EUR/JPY cross may regain ground if the Euro finds support from hopes of de-escalation in the Middle East conflict. The White House reported ongoing talks, with the Trump administration sending a 15-point proposal to Iran via Pakistan. Senior Iranian officials are reviewing the proposal but signaled no willingness to engage directly with Washington, and Tehran is expected to reject a US ceasefire offer, instead proposing a five-point plan including sovereign control over the Strait of Hormuz [1]. European Central Bank (ECB) President Christine Lagarde stated the ECB is assessing the conflict’s economic impact and remains ready to adjust policy at any meeting if energy-driven inflation risks broaden [1].
CONCLUSION
EUR/JPY's subdued performance reflects heightened BoJ rate hike expectations amid oil-driven inflation and geopolitical tensions. Rising Japanese bond yields and flexible BoJ policy signal tightening conditions, while ECB remains vigilant on inflation risks. Market participants are closely watching central bank actions and geopolitical developments for further direction.