EUR/JPY Outlook:
The EUR/JPY is likely to move sideways as it trades near its 90-day average and within a stable 3-month range. The lack of distinct drivers suggests limited volatility in the near term.
Key drivers:
• Rate gap: The European Central Bank is expected to maintain an accommodative stance while the Bank of Japan has recently increased rates, which could support the yen.
• Risk/commodities: A significant rise in oil prices has pressured the yen due to increased import costs for Japan, potentially benefiting the euro's relative strength.
• One macro factor: Japan faces fiscal concerns with proposed tax cuts ahead of elections, which could undermine investor confidence in the yen as fiscal deficits grow.
Range:
The EUR/JPY is likely to hold within its recent range, reflecting a stable position despite mixed signals from both economies.
What could change it:
• Upside risk: A stronger-than-expected Eurozone industrial production report could boost the euro against the yen.
• Downside risk: An escalation in geopolitical tensions affecting oil prices further could weaken the yen and create downward pressure on the EUR/JPY exchange rate.
