EUR/JPY is struggling to capitalize on a modest intraday rally on Wednesday and remains below the round figure of 181.00 during the Asian session. Meanwhile, mixed fundamental signals are keeping spot prices confined to the weekly range and require some caution before placing aggressive directional bets.
The Japanese yen (JPY) gained slightly after reports suggested that the Bank of Japan (BoJ) has deliberately changed its messaging to highlight the inflationary risks of the local currency’s continued weakness and that a December rate hike is still a live option. This comes on top of Japan’s services producer price index, which rose 2.7% in October from a year earlier and indicated that the Bank of Japan remains on the cusp of achieving its 2% inflation target permanently. This reaffirms the Bank of Japan’s hawkish outlook and supports the Japanese yen, capping the upside in EUR/JPY.
However, Japanese yen bulls appear to be hesitant amid concerns about Japan’s faltering fiscal position on the back of Prime Minister Sanae Takaishi’s pro-stimulus stance. Moreover, the prevailing risk-on sentiment – as evidenced by the generally positive tone in equity markets – is contributing to the safe-haven cap of the Japanese yen. On the other hand, the common currency is benefiting from a broadly weak US dollar and appears to have been unaffected by the second German GDP estimate, which showed that the euro zone’s largest economy remained stagnant in the third quarter of 2025.
However, investors appear convinced that large-scale fiscal stimulus next year should be enough to finally improve conditions for the German economy. Germany’s draft budget for 2026 expects spending of about 525 billion euros, which represents a significant increase compared to the previous year. This, coupled with expectations that the European Central Bank (ECB) has finished cutting interest rates, could support the Euro (EUR) and support the EUR/JPY pair. Traders are now looking to scheduled speeches from ECB Chief Economist Philip Lane and President Christine Lagarde for fresh momentum.
Frequently asked questions about the euro
The euro is the official currency of the twenty European Union countries that belong to the eurozone. It is the second most traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily trading volume of more than $2.2 trillion per day. The EUR/USD is the most widely traded currency pair in the world, accounting for a 30% discount on all transactions, followed by EUR/JPY (4%), EUR/GBP (3%), and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher interest rates – usually benefit the euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is one of the important economic indicators for the euro. If inflation rises beyond expected, especially if it is above the ECB’s 2% target, this forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to their counterparts usually benefit the euro, because they make the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can affect the euro. Indicators such as GDP, manufacturing and services PMIs, employment, and consumer confidence surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the European Central Bank to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro will likely fall. Economic data for the four largest Eurozone economies (Germany, France, Italy and Spain) are of particular interest, as they represent 75% of the Eurozone economy.
Another important data for the Euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a certain period. If a country produces highly desirable exports, its currency will gain value from the additional demand generated by foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens the currency and vice versa for a negative balance.
