EUR/JPY surges above 177.50 following BoJ interest rate decision

• EUR/JPY climbs as the Japanese Yen loses ground after the BoJ decided to keep interest rates unchanged.
• The JPY remains under pressure as fading safe-haven demand and optimism over a potential US-China trade deal lift market sentiment.
• The Euro could receive support as the ECB is expected to hold rates steady later in the day.

EUR/JPY gains ground after two days of losses, trading around 177.50 during the Asian hours on Thursday. The currency cross receives support as the Japanese Yen (JPY) faces challenges after the Bank of Japan (BoJ) decided to keep the short-term interest rate target unchanged in the range of 0.4%- 0.5% in October.

The BoJ decision came in line with the market expectations. The Japanese central bank extended the pause to its tightening cycle into a sixth straight meeting, following a 25 basis points (bps) hike in January.

BoJ officials are expected to discuss conditions for resuming rate hikes as tariff pressures ease and domestic inflation picks up. However, the outlook is complicated by newly elected Prime Minister Sanae Takaichi's support for a loose monetary policy stance and resistance to early tightening.

The Japanese Yen (JPY) may weaken as safe-haven demand fades amid improved market sentiment driven by optimism over a potential US-China trade deal. At the time of writing, the meeting between US President Donald Trump and Chinese President Xi Jinping is going on at a South Korean airbase near Gimhae International Airport in Busan. Both leaders are expected to discuss a wide range of issues, from fentanyl tariffs to rare-earth to soybean trade to the TikTok deal.

Traders await a slew of key economic data, like Unemployment and Gross Domestic Product (GDP) data from Germany and the Eurozone, followed by the European Central Bank (ECB) interest rate decision. The ECB is expected to hold rates steady for a third straight meeting in October, with no policy changes likely in 2025. Policymakers remain cautious amid signs of economic resilience and easing inflation.