The Role of ECB Interest Rate Policy
The recent depreciation of the EUR/JPY below the psychologically significant mark of 162.00 reflects complex interactions between monetary policy expectations and geopolitical risk factors. A central driver of this development is the interest rate policy of the European Central Bank (ECB). On April 17, 2025, the ECB reduced its key interest rates for the seventh time since June 2024 by 25 basis points, bringing the deposit rate down to 2.25%. This continuous easing policy structurally weakens the Euro as lower interest rates lead to capital outflows into higher-yielding currencies. ECB President Lagarde also emphasized increased “downside risks” for the Eurozone economy, exacerbated by looming US tariffs.
Yen as a Safe Haven
The Japanese Yen particularly benefits from three interconnected factors in the current situation. Firstly, the escalation of trade conflicts, especially Trump’s threat of new tariffs against the EU, drives demand for the Yen as a safeguard against trade risks. Secondly, the “extraordinary uncertainty” in the global economy generates risk aversion that redirects capital flows into safe havens like the Yen. Thirdly, ING analysts predict a long-term weakness cycle for the Dollar, while the Yen is used in the short term as a hedge against the consequences of US protectionism.
Market Mechanisms in Detail
Although real money inflows into the Euro, for example through portfolio rebalancing, are present, speculative pressure currently dominates, driven by escalating trade conflicts. The decline of the EUR/JPY also correlates with rises in Asian stock markets, a typical pattern during risk appetite rallies followed by subsequent profit-taking in the Yen.
This dynamic illustrates how currency pairs like EUR/JPY increasingly function as indicators of global risk appetite, particularly due to simultaneous monetary policy divergences and trade policy tensions between major economic blocs.