Yen Strengthens as Japan Maintains Tightening While ECB Moves to Cut Rates

The yen surged on Thursday as Japan stays on track for rate hikes, while the European Central Bank (ECB) is expected to ease. The dollar fell 0.5% to 154.43 yen, and the euro dropped to 160.96 yen. Meanwhile, the euro held steady against the dollar at $1.0423 after the Federal Reserve paused its easing cycle.

Markets fully anticipate a 25-basis-point ECB rate cut to 2.75%, with some pricing in a 50-basis-point cut due to the weak EU economy. Analysts at ANZ warn that eurozone inflation is fading, increasing pressure on the ECB to stimulate growth. Markets expect additional cuts in March, April, and June, totaling 90 basis points in 2025. ECB President Christine Lagarde’s stance later today could impact the euro further.

Conversely, Bank of Japan Deputy Governor Ryozo Himino is set to reinforce expectations for further tightening, boosting the yen.

The dollar initially rose when the Fed dropped its “progress” reference on inflation, signaling a hawkish stance. However, Chair Jerome Powell later clarified that rates remain significantly above neutral, leaving room for cuts. Futures indicate 48 basis points of Fed easing this year, with a 73% chance of a June rate cut.

U.S. GDP data due Thursday is expected to show 2.6% growth in Q4, though estimates range from 1.7% to 3.2%, raising the potential for market movement.

Elsewhere, Canada and Sweden cut rates by 25 basis points, citing U.S. tariff uncertainty. Meanwhile, Brazil raised rates to 13.25%, driving the real up 5% this year.

Investors remain watchful of central bank policies shaping global currency and interest rate trends.