EUR/JPY steadies near 167.00 as markets weigh geopolitics and interest rates

• EUR/JPY remains supported as the ECB leans dovish and the BoJ maintains an ultra-loose policy stance.
• EUR/JPY trades firm ahead of Japan's inflation data.
• The Euro looks to Friday's German PPI for directional cues, as weak prints could reinforce expectations of ECB easing.

EUR/JPY is holding near the 167.00 level on Thursday, as markets digest cautious commentary from European Central Bank (ECB) policymakers and prepare for key monetary policy updates from the Bank of Japan.

While the Euro (EUR) faced mild pressure earlier in the session, a broadly weaker Japanese Yen (JPY) helped keep the cross supported, as investors remained focused on the diverging policy paths between the ECB and the Bank of Japan (BoJ).

ECB speakers hint at potential for future rate cuts

Speaking on Thursday at the European University Institute in Italy, François Villeroy de Galhau, Governor of the Banque de France and a member of the ECB's Governing Council, said the next move in interest rates "would most likely be a cut" within the next six months, as long as there are no major geopolitical shocks. 

He warned that external risks, such as a surge in Oil prices or new military developments in the Middle East, could delay policy easing, but emphasized the ECB's readiness to gradually loosen policy should inflation dynamics permit.

His remarks reinforced the ECB's preference for a patient and data-driven approach, adding to market expectations for a possible rate cut in Q3.

Also on Thursday, Bundesbank President Joachim Nagel backed the cautious tone, noting that Eurozone inflation had cooled to 1.9% in May, effectively reaching the ECB's 2% target. Still, he urged a "meeting-by-meeting" approach to rate decisions, citing persistent uncertainty surrounding global economic conditions and geopolitical risks.

Japanese Yen remains cautious ahead of BoJ Minutes

On the Japanese side, BoJ Governor Kazuo Ueda reiterated that Japan needs to see a "sustainable and stable" rise in inflation before raising interest rates. 

His comments, delivered earlier this week, effectively pushed back against speculation of a rate hike as soon as July. With Japan's policy rate still near zero and inflation expectations remaining subdued, the Yen has stayed under pressure, underpinning the broader uptrend in EUR/JPY.

Looking ahead, several key risk events could influence the next move in EUR/JPY. 

On Friday, the release of Eurozone flash manufacturing and services Purchasing Managers' Index (PMI) for June will provide a timely snapshot of business activity across the bloc.

A reading below the 50.0 threshold would signal contraction and could reinforce market expectations for ECB rate cuts, putting renewed pressure on the Euro. 

Meanwhile, Thursday's BoJ meeting minutes, due at 23:50 GMT, will be closely watched for any hints of a shift in policy stance. 

Geopolitical tensions also remain a critical wildcard, with the ongoing Israel-Iran conflict posing the risk of safe-haven flows into the Yen. Should the situation escalate, it could limit EUR/JPY gains despite underlying Eurozone fundamentals.