EUR/JPY stabilizes near record high as ECB holds rates, Yen weakens on fiscal concerns

• EUR/JPY trades around 178.30 on Friday, near the record high reached on Thursday.
• Expectations of aggressive fiscal spending in Japan weigh on the Japanese Yen.
• The European Central Bank's decision to keep rates unchanged supports the Euro.

EUR/JPY stabilizes around 178.30 on Friday, virtually unchanged on the day after briefly pulling back from its all-time high reached the previous day at 178.82. The pair remains supported by a favorable rate differential for the Euro (EUR), while investors stay cautious toward the Japanese Yen (JPY).

The JPY initially found modest support after the release of Tokyo's Consumer Price Index (CPI), which rose 2.8% YoY in October, beating expectations and remaining well above the Bank of Japan's (BoJ) 2% target. However, this support quickly faded amid speculation that Japan's new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and discourage immediate monetary tightening. This prospect limits the Japanese Yen's upside potential despite stronger inflation and solid industrial data.

At its meeting on Thursday, the BoJ kept its policy rate unchanged at 0.5%, with two board members advocating for a hike to 0.75%. Governor Kazuo Ueda emphasized that the central bank remains data-dependent and has no preset timeline for its next decision. Meanwhile, Japan's new political leadership reinforces expectations that monetary normalization could be delayed until later this year.

On the European side, the European Central Bank (ECB) left interest rates unchanged at 2% for the third consecutive meeting on Thursday, stressing that policy was "well-calibrated" as the Eurozone economy remains resilient and inflation moves closer to the medium-term target. The Harmonized Index of Consumer Prices (HICP) released earlier in the day slowed slightly to 2.1% YoY in October, while the core measure came in at 2.4%, a touch above expectations. This steady stance supports the Euro and helps keep the EUR/JPY pair near its record highs.

Overall, the divergence between a still-cautious Bank of Japan and a confident European Central Bank continues to favor the bullish trend in EUR/JPY, although the pair appears to be pausing after its recent rally.