EUR/JPY holds losses below 164.50 after release of ZEW Economic Sentiment Surveys

• EUR/JPY retreats after reaching a six-month high of 164.92 on Monday.
• The German ZEW Economic Sentiment index surged to 25.2 in May, rebounding sharply from -14 in April.
• The Japanese Yen strengthened despite ongoing uncertainty over the Bank of Japan's interest rate trajectory.

EUR/JPY loses ground after registering more than 0.50% gains in the previous session, trading around 164.20 during the Asian hours on Tuesday. The currency cross remains subdued following the release of ZEW Economic Sentiment surveys from Germany and the Eurozone.

The German ZEW Economic Sentiment index jumped to 25.2 in May, a sharp rebound from -14 in April and well above the market forecast of 11.9. Similarly, the Eurozone ZEW Economic Sentiment index rose to 11.6, up from -18.5 in the previous month.

Reuters reported that several European Central Bank (ECB) officials expect the ongoing policy review to reaffirm existing strategies, including quantitative easing (QE), despite some internal dissent. Policymakers also indicated that the ECB will continue to use language referencing "forceful action" during periods of low interest rates and inflation.

The EUR/JPY cross weakened as the Japanese Yen (JPY) gained ground, even amid continued uncertainty surrounding the Bank of Japan's (BoJ) interest rate path. BoJ Deputy Governor Shinichi Uchida acknowledged both upside and downside risks stemming from potential US tariffs, warning that such trade measures could weigh on Japan's economy. He noted that Japan's growth is projected to slow toward its potential rate before gradually rebounding, assuming global economic conditions improve.

Uchida also highlighted rising wages amid a tight labor market, suggesting that businesses are likely to continue passing higher labor costs onto consumers. This, he said, may help sustain underlying inflation and boost inflation expectations over time.

The BoJ's Summary of Opinions from its April 30-May 1 policy meeting underscored ongoing uncertainty as a key concern. One board member indicated that further rate hikes are likely if economic and inflation trends improve, while another warned that US trade policy, particularly higher tariffs, could pose a significant threat to Japan's economic outlook and inflation trajectory.