EUR/JPY Holds Steady as Markets Price in ECB and BoJ Rate Hikes

EUR/JPY traded close to 185.70 on Monday, August 24, with the currency pair showing little movement as investors assessed changing interest rate expectations in Europe and Japan. The Japanese Yen received some support after Japan reported stronger inflation figures for July. The country's headline Consumer Price Index rose 1.9% year-over-year, accelerating from 1.6% in June. Core inflation, which excludes fresh food prices, also increased to 1.8% from 1.6%. The stronger inflation data has increased expectations that the Bank of Japan could raise interest rates again. Market pricing now indicates roughly an 82% probability of a BoJ rate hike in September, significantly higher than expectations before the central bank's July meeting. Higher Japanese interest rates would normally support the Yen by reducing the yield gap between Japan and other major economies. However, several factors continue to limit the Yen's strength. Japan's borrowing costs remain considerably lower than those in many other developed economies, which continues to make the Yen attractive as a funding currency for carry trades. Investors also remain cautious about Japan's fiscal outlook and the potential economic impact of continued geopolitical tensions in the Middle East and disruptions around the Strait of Hormuz. ECB Expectations Support the Euro The Euro is receiving support from growing expectations that the European Central Bank will also raise interest rates in September. Markets are currently pricing in approximately a 95% probability of an ECB rate increase at its September policy meeting. Expectations for higher Eurozone borrowing costs are helping prevent a significant decline in EUR/JPY, even as the Yen benefits from stronger Japanese inflation and expectations of tighter BoJ policy. Deutsche Bank Expects One More ECB Hike Deutsche Bank strategists continue to expect the ECB to deliver a final 25-basis-point rate increase in September, taking rates toward the upper end of the estimated neutral range. The bank believes some of the recent increase in European goods inflation has been driven by temporary factors rather than a broad acceleration in underlying inflation. As a result, Deutsche Bank currently sees limited justification for aggressive tightening beyond September unless inflation pressures broaden or economic activity proves significantly stronger than expected. Bank lending data could become an important factor in determining whether the ECB needs to continue tightening monetary policy. What Markets Are Watching Next Traders will closely monitor comments from Bank of Japan Deputy Governor Ryozo Himino on Thursday for clues about the pace of future monetary policy normalization. Markets will also examine the ECB's July meeting accounts, which are scheduled for release this week. Any stronger signals supporting additional rate hikes from either central bank could increase volatility in EUR/JPY. For now, competing expectations surrounding ECB and BoJ monetary policy are keeping the pair relatively balanced near the 185.70 area. Market Outlook The short-term direction of EUR/JPY is likely to depend heavily on changes in interest rate expectations. Stronger signals from the BoJ could strengthen the Yen and pressure EUR/JPY lower, while increasingly hawkish ECB expectations could provide additional support for the Euro. With both central banks moving toward tighter monetary policy, traders should expect central-bank commentary, inflation figures, and interest-rate expectations to remain the main drivers of the pair. Market update based on publicly available economic data and market information as of August 24, 2026.