• EUR/JPY softens to near 181.40 in Friday’s early European session. 
• Japan’s cabinet approved 21.3 trillion yen economic stimulus package. 
• ECB’s Makhlouf said the current monetary policy is appropriate. 

The EUR/JPY cross declines to around 181.40 during the early European session on Friday. The Japanese Yen (JPY) strengthens against the Euro (EUR) in the wake of Japan’s Cabinet approving the 21.3 trillion yen economic stimulus package. Traders await the preliminary reading of HCOB Purchasing Managers Index (PMI) reports from the Eurozone, Germany, and France for fresh impetus. 

Reuters reported on Friday that Japanese Prime Minister Sanae Takaichi’s cabinet approved a 21.3 trillion yen ($135.40 billion) economic stimulus plan. This is the first significant policy initiative under the new leader, who has promised to pursue expansionary fiscal policies. 

The package contains 17.7 trillion yen in general account outlays, which substantially exceeds the previous year’s 13.9 trillion yen and represents the largest stimulus since the COVID epidemic. It will also include tax cuts totaling 2.7 trillion yen. The JPY edges slightly higher against the EUR in an immediate reaction to the report. 

Nonetheless, fiscal concerns and the Bank of Japan (BoJ) rate hike uncertainty might cap the upside for the JPY and act as a tailwind for the cross. A narrow majority of economists expect the Japanese central bank to raise rates to 0.75% in December, with all forecasters seeing at least that level by the end of the first quarter (Q1), a Reuters poll showed on Thursday. 

The cautious remarks from the European Central Bank (ECB) might also underpin the EUR. The ECB is widely anticipated to leave the key interest rates unchanged through the end of 2026, with inflation hovering near its 2% target, stable economic growth, and unemployment at record lows. ECB Governing Council Gabriel Makhlouf said on Thursday that the current monetary policy is appropriate and any adjustment is unlikely, unless there is a material change.