EUR/JPY climbs as risk appetite returns, BoJ hawkish tone contrasts with ECB caution

• The EUR/JPY pair rises above the 177.00 level on Friday, supported by a mild return of risk appetite.
• The Bank of Japan's minutes revive expectations of an imminent rate hike.
• The European Central Bank's cautious tone limits Euro gains.

EUR/JPY trades higher on Friday, around 177.10 at the time of writing, gaining 0.20% for the day, after briefly losing ground toward 176.50 earlier in the day. The cross is rebounding as the Japanese Yen (JPY) weakens slightly in a mild risk-on market environment, while investors assess the diverging monetary policy outlooks between the Bank of Japan (BoJ) and the European Central Bank (ECB).

Minutes from the BoJ's September meeting showed that an increasing number of policymakers believe the conditions are falling into place for an interest rate hike, with two members calling for immediate action. This more hawkish tone supports the Japanese Yen in the short term, but the central bank's cautious stance and domestic political uncertainty temper expectations. Japan's new Prime Minister, Sanae Takaichi, who favors stimulus policies, is reportedly preparing an economic support package worth around $65 billion, which could slow down the BoJ's tightening path.

Recent comments from Japanese officials also highlight growing vigilance over foreign exchange movements. Finance Minister Satsuki Katayama said authorities are "monitoring Yen moves with a high sense of urgency," fueling speculation about a possible intervention to curb volatility.

In Europe, the ECB maintains a cautious tone. President Christine Lagarde stated that the current policy is "in a good place," a view echoed by Governing Council member Boris Vujcic, who said the institution has "done its job" after bringing inflation close to target. Markets now assign less than a 50% probability of another rate cut before July 2026, according to Morningstar.

On the macroeconomic front, the latest European figures send mixed signals. German retail sales unexpectedly contracted in September, while the country's trade surplus narrowed to €15.3 billion, below the €16.8 billion expected. These numbers highlight the fragility of the Eurozone's recovery and limit the Euro's (EUR) momentum.