EUR/JPY is experiencing a decline, trading around 155.30, following remarks from BoJ Deputy Governor Shinichi Uchida. He noted Japan’s inflation is rising steadily towards the 2% target, which strengthens the likelihood of impending rate hikes.

The Tokyo Consumer Price Index (CPI) reported a slowdown, with headline CPI increasing by 2.9% year-on-year in February, down from January’s 3.4%. The core CPI rose by 2.2% year-on-year, lower than January’s 2.5%, contributing to the currency’s pressure.

Market sentiment remains risk-averse, partly due to renewed trade tensions instigated by US President Donald Trump. He suggested possible tariffs on European goods and reaffirmed planned duties on imports from Mexico, Canada, and China.

This uncertainty about tariffs could adversely impact the Eurozone economy, which is already facing weak demand, potentially exerting further pressure on the EUR/JPY exchange rate.

Uchida’s remarks have added fuel to expectations that Japan could move towards tightening its monetary policy. Investors paying attention to these signals will recognise that if Japan raises interest rates, the yen could gain more strength against the euro. With EUR/JPY already sliding to around 155.30, this shift may not yet be fully accounted for in pricing. Given Japan’s steady progress towards the 2% inflation target, it’s not surprising that speculation around a rate increase is intensifying.

However, the Tokyo CPI slowing down for February tells a slightly different story. The drop from 3.4% to 2.9% in the headline figure shows that price pressures may not be as persistent as some had expected. A similar trend in core CPI, softening from 2.5% to 2.2%, suggests inflation is cooling rather than accelerating. This could complicate the case for imminent BoJ policy tightening, though market participants might still lean towards positioning for an eventual rate hike rather than dismissing it outright.

At the same time, there is a broader shift in market sentiment. Risk appetite is subdued, and this isn’t just about Japan’s economic policy. Renewed trade tensions are casting a shadow over global markets, with Donald Trump’s comments adding to uncertainty. Potential tariffs on European exports, alongside measures targeting Mexico, Canada, and China, could weigh on growth prospects for several economies.

For Europe, these concerns couldn’t come at a worse time. The region was already contending with weak demand, and additional trade barriers would only add to the economic strain. A slower-performing Eurozone means less room for the European Central Bank to consider tightening its own policy, further tilting the balance in favour of the yen. As long as these headwinds continue for Europe while Japan inches closer to normalising rates, downward pressure on EUR/JPY could persist.

For traders, the next few weeks are likely to be shaped by further developments in these areas. If Japan’s inflation momentum holds up and officials maintain their hawkish tone, it will reinforce the current trend. Meanwhile, any confirmation of trade restrictions from Washington could dampen sentiment around the euro even further. Tracking official comments and inflation data will be necessary to understand the pace at which these shifts are happening.