EUR/JPY Plummets on BoJ Rate Hike Speculation and Fiscal Worries

The EUR/JPY cross has softened to near 184.50, maintaining a mildly bearish bias in the short term due to its position below the 100-day simple moving average (SMA).

This development comes as Japan's National Consumer Price Index (CPI) inflation report is set to be released on Friday.

Speculation about the Bank of Japan raising interest rates in the coming months, potentially as soon as September, has provided some support to the Japanese Yen. Reuters reported that the central bank is considering a rate hike by September, with overnight index swaps pricing in an 80% likelihood of this event.

However, mounting fiscal worries in Japan may exert selling pressure on the JPY, particularly regarding Prime Minister Sanae Takaichi's proposal to cut the consumption tax on food to 1% for two years. This measure is viewed as ineffective in fighting inflation and lacks a clear alternative revenue source.