EUR/JPY advances above 185.00 as fiscal expansion pressures Japanese Yen

The EUR/JPY cross gathers strength to near 185.20 during the early European session on Thursday. The Japanese Yen (JPY) weakens against the Euro (EUR) amid fiscal expansion concerns. The German Industrial Production data for February is due later on Thursday. 

Reuters reported on Thursday that the ceasefire deal appeared to be on thin ice, as Israel continued its parallel war against the Iran-aligned militia Hezbollah in Lebanon. Iranian officials stated that both Israel and the US had breached the terms of the ceasefire deal, adding that proceeding with peace talks would be “unreasonable.”

Traders anxiously assessed whether a fragile two-week ceasefire between the United States and ‌Iran would hold. "With the Middle East situation becoming more prolonged, there seems to be a view that fiscal policy could turn more expansionary again. That, in turn, is contributing to yen weakness," said Sho Suzuki, market analyst at Matsui Securities.

Markets anticipate a potential Bank of Japan (BoJ) rate hike at the upcoming April policy meeting, which could support the JPY and create a headwind for the cross. Tomohisa Fujiki of Citi Research indicated that there is up to a 70% probability of this monetary policy adjustment.

The European Central Bank (ECB) has adopted a hawkish tone, with policymakers signaling a shift toward potential further tightening if price pressures persist. ECB officials, including Pierre Wunsch and Dimitar Radev said that an interest rate hike at the April meeting is a live possibility, though many officials view a June move as more likely.