EUR/JPY Weighed Down by BoJ Rate Hike Expectations and Fiscal Concerns

The EUR/JPY pair has been experiencing a mildly bearish tone, trading around 184.60 in early European hours on Wednesday.

This is due to expectations that the Bank of Japan could raise interest rates as early as September, with overnight index swaps pricing about an 80% probability of such a move by then.

The Japanese Yen's advance has been modest against the Euro, responding to hawkish signals from the Bank of Japan and growing speculation around a potential rate increase.

However, concerns around Japan's fiscal trajectory are tempering the JPY's advance. A proposal to reduce the consumption tax on food to 1% for two years has triggered worries in financial markets, as no replacement revenue source has been identified.