EUR/JPY. Price analysis. Forecast. Slowing inflation in the eurozone strengthened the euro

[Ben Graham]

On Monday, the EUR/JPY cross is rising amid mixed macroeconomic signals from Europe and Japan. The pair's dynamics reflect heightened market sensitivity to inflation data and political risks affecting both the euro and the Japanese yen.

In the eurozone, fresh inflation data confirm a sustained downward trajectory of price pressures. In December the Harmonized Index of Consumer Prices (HICP) year-on-year was revised down to 1.9% from an initial estimate of 2.0%, down from 2.1% in November and below the consensus forecast. Core inflation, calculated by the core HICP, was confirmed at 2.3% year-on-year, after 2.4% in November, which shows a slowdown in price pressures and removes some of the arguments in favour of further monetary tightening. In these conditions, the European Central Bank maintains a cautious tack, keeping key interest rates unchanged since the end of the rate-cutting cycle in June 2025, signalling that it does not see a need for a near-term policy adjustment.

The Governing Council continues to follow a data-dependent approach, making decisions meeting by meeting and avoiding a pre-announced path of rate changes. Inflation approaching the ECB's 2% target strengthens the case for maintaining the current policy, contributing to euro stabilisation.

On the geopolitical front, rising trade tensions between the European Union and the United States add another source of uncertainty. European politicians have warned they are prepared to take countermeasures if the new tariffs announced by US President Donald Trump are implemented, which raises risks for the external trade sector and may influence investor sentiment.

EU ambassadors have agreed to step up diplomatic pressure on Washington while also developing possible countermeasures to minimise damage to European companies. Germany's Finance Minister Lars Klingbeil stressed that Europe intends to respond firmly to any new US tariffs and will not give in to pressure, which could keep markets nervous and provoke sharp volatility in the euro.

In Japan, the yen remains under pressure amid rising political uncertainty. Prime Minister Sanae Takaichi has announced her intention to dissolve parliament on January 23 and hold early general elections on February 8, which increases risks for the country's political and economic agenda. This factor worsens the perception of the yen as a safe-haven asset, although several supporting drivers remain.

Japan's Finance Minister Satsuki Katayama noted that the authorities are still considering all available tools, including direct and coordinated interventions with the United States, to counter excessive weakening of the national currency. Additionally, Reuters reports that the Bank of Japan may raise interest rates earlier than currently priced into the market, potentially as early as April, even though the central bank is expected to keep the key rate unchanged at 0.75% at the next meeting.

Against the backdrop of slowing inflation in the eurozone, cautious central bank stances and rising political uncertainty in both Europe and Japan, EUR/JPY remains highly sensitive to shifts in investor sentiment and official rhetoric.

A moderate rise toward the 183.90 area under current conditions reflects a slight advantage for the euro over the yen, while market participants remain cautious and closely monitor new political and monetary signals that could trigger another wave of volatility. The table below shows the percentage changes in the euro against major world currencies today, with the largest gain against the US dollar.

From a technical point of view, the pair has encountered resistance at the convergence of three moving averages around 183.90. Daily-chart oscillators are positive, supporting the bulls. If prices can overcome this level, the path to the January high will open, though some obstacles lie ahead. But if the pair falls below the round level 183.00 into the 182.70–182.60 zone, the decline will accelerate toward 182.20.

The material has been provided by InstaForex Company - www.instaforex.com