The EUR/JPY pair extends gains to trade around 178.35 during Tuesday’s Asian session, supported by a recovery in market risk appetite. The euro (EUR) strengthens against the Japanese yen (JPY) as investors await the release of the German and Eurozone ZEW Economic Sentiment Index later in the day, a key gauge of investor confidence across the region.
Risk sentiment supports the Euro
Optimism surrounding a potential resolution to the US government shutdown has boosted broader market sentiment, providing support to risk-linked assets such as the euro.
The US Senate on Tuesday passed a funding bill aimed at ending the prolonged government closure, which will now move to the House of Representatives for final approval. The prospect of the shutdown ending in the coming days has improved investor confidence and weighed on demand for safe-haven currencies like the yen.
ECB’s cautious stance underpins Euro outlook
The euro also benefits from comments by European Central Bank (ECB) officials suggesting that current monetary policy remains appropriate. ECB Vice President Luis de Guindos noted on Monday that interest rates are at suitable levels and highlighted that inflation is moving closer to the bank’s 2% target.
Meanwhile, other policymakers maintained a cautious stance, stressing the importance of vigilance against lingering inflationary risks. The balanced tone has helped stabilize expectations around the ECB’s policy outlook, lending modest support to the common currency.
Yen capped by intervention concerns
On the other hand, potential intervention risks continue to limit yen volatility. Japan’s Finance Minister Satsuki Katayama recently warned against excessive, one-sided movements in the Yen and reiterated that authorities are closely monitoring currency markets. The comments have sparked speculation that Tokyo may step in if the yen weakens further, which could cap additional upside in the EUR/JPY cross in the near term.
