The EUR/JPY exchange rate is currently range-bound, with the euro trading around 183.8, above its recent average. Key drivers include the interest rate differential, where the Bank of Japan's recent rate hikes contrast with the European Central Bank’s flexible approach to interest rates, affecting the euro's strength. Japanese economic data shows improvement, bolstered by a slightly more optimistic business sentiment and rising defense spending, creating a supportive backdrop for the yen. Also, ongoing geopolitical tensions, particularly related to energy prices and global trade dynamics, may significantly impact the euro's valuation.
Expect the EUR/JPY pair to fluctuate within a stable range based on market sentiment over the next few months. Upside risks may arise from any substantial improvement in the eurozone's economic indicators or further ECB policy changes. Conversely, downside risks could stem from a sudden shift in U.S. Treasury yields or aggressive policy measures from Japan aimed at stabilizing the yen.
