EUR/JPY weakens as Yen rises on US-Japan deal, ECB and BoJ meetings eyed

• The EUR/JPY pair retreats by 0.50% on Tuesday, potentially ending a five-day winning streak.
• The US-Japan agreement to secure critical mineral supplies supports the Japanese Yen.
• Bank of Japan and European Central Bank policy decisions awaited on Thursday.

EUR/JPY weakens on Tuesday, falling 0.50% for the day to around 177.10 at the time of writing, after hitting a multi-year high at 178.23 the previous day, and halting a five-day winning streak. The Japanese Yen (JPY) benefits from renewed demand after US President Donald Trump and Japan's Prime Minister Sanae Takaichi signed an agreement in Tokyo to secure the supply chain of rare earths and other critical minerals. This bilateral commitment comes amid growing tensions with China, which recently tightened its export controls on these strategic materials.

The prospect of a new era of cooperation between Washington and Tokyo, described by Takaichi as a "golden age", has strengthened the JPY, traditionally sought in times of geopolitical uncertainty. At the same time, investors are keeping a close eye on the upcoming Bank of Japan (BoJ) meeting on Thursday to determine whether the institution will confirm expectations for another rate hike by the end of the year. Data released on Monday showed that the Services Producer Price Index accelerated to 3% YoY in September, which could support a more hawkish tone from the BoJ.

On the European side, the Euro (EUR) remains under pressure after Standard & Poor's (S&P) Global downgraded France's sovereign rating in a surprise move, citing political uncertainty surrounding Prime Minister Sébastien Lecornu's government. In addition, the latest European Central Bank (ECB) survey showed a slight decline in households' inflation expectations to 2.7% over the next 12 months, reinforcing the view that interest rates will remain at 2% during Thursday's meeting. Markets will closely watch ECB President Christine Lagarde's remarks for any hints on the central bank's stance amid a still fragile economic recovery.

Overall, the combination of a JPY supported by favorable geopolitical developments and a EUR weakened by political risks in Europe keeps pressure on the cross, which consolidates in a cautious mood ahead of this week's key monetary policy meetings.