EUR/JPY surges past 185.50 to new all-time highs amid worries over Japan's fiscal situation

EUR/JPY Hits New Record Highs as Yen Weakens

The EUR/JPY currency pair continued its upward momentum for a fourth consecutive session, reaching unprecedented levels near 185.40 in early European trading on Wednesday. This surge is largely attributed to the ongoing decline of the Japanese Yen, which is under strain due to increasing worries about Japan’s fiscal stability and the direction of its monetary policy.

According to a report from Bloomberg, Bank of Japan (BoJ) Governor Kazuo Ueda indicated his readiness to implement interest rate hikes if economic trends and inflation continue to align with the central bank’s projections, and if wage and price growth remain steady.

Despite these remarks, a recent private sector survey revealed that manufacturing output is losing momentum due to ongoing trade tensions, while challenges in the tourism sector are putting additional pressure on services. These factors are limiting the BoJ’s ability to consider further rate increases.

The Japanese Yen continues to face downward pressure amid speculation that Prime Minister Sanae Takaichi could announce an early election next month to strengthen her political position and pursue more aggressive fiscal measures. Reports suggest a possible Lower House election on February 8.

Earlier this week, Finance Minister Satsuki Katayama disclosed that she and US Treasury Secretary Scott Bessent expressed concerns about the Yen’s “one-sided depreciation” during discussions at a recent multilateral finance ministers’ meeting.

Looking ahead, the EUR/JPY pair may find additional support as the Euro benefits from expectations that the European Central Bank (ECB) is approaching the conclusion of its rate-cutting cycle, thanks to moderating inflation. In December, Eurozone headline inflation dropped to 2.0%, its lowest in four months and matching the ECB’s target, while core inflation eased to 2.3%, slightly under market expectations.