The German IFO Institute’s widely watched Business Climate Index registered a steep drop in business sentiment for December. It came in at 87.6, missing the forecast of 88.2. This is a new low from November’s 88.0, showing flagging confidence from German firms. The steep fall in business confidence may well herald tougher times for the German economy, the strongest don in the European Union.
The eurozone is juggling some major economic unknowns. Consequently, EUR/JPY currency pair has appreciated marginally by 0.25% and currently trades near 182.15. This growth is due, in part, to the persistent weakness of the Japanese Yen against its major peers.
The State of German Business Confidence
Released alongside the German IFO Institute’s Business Climate Index, this gauge is a key economic barometer for measuring business sentiment in Europe’s largest economy. This month’s reading of 87.6 is a significant drop from previous months, reflecting increased worry over expectations of future economic activity. Analysts had been expecting a better picture, with the index projected to rise to 88.2.
That index has fallen in recent years, reflecting an overall trend of increased economic insecurity. Further, businesses continue to struggle with a host of other pressures including inflation and continued supply chain constraints.
“The central bank’s baseline economic and price outlook materializing had been gradually increasing.” – Bank of Japan (BoJ) Governor Kazuo Ueda
We’re so glad that BoJ Governor Kazuo Ueda recognizes the pickle we’re in. Davidson paints a picture that inspires some optimism overall.
Japanese Yen Struggles Against Major Currencies
Opposite to the euro’s soft gains, the Japanese Yen is under steep pressure, especially versus the US Dollar. The Yen’s performance, one of the worst hit, has made it so far the weakest major currency. Traders are closely monitoring developments as they anticipate that the Bank of Japan will likely raise interest rates during its upcoming monetary policy meeting on Friday.
The heat map illustrates 24 hour percentage changes of major world currencies. It does bring to the fore the Yen’s debilitating fight, showing huge drops against most everyone. As central bank policies diverge, market participants remain vigilant about potential shifts in interest rates that could impact the currency landscape.
“Closer to attaining its inflation target.” – Bank of Japan (BoJ) Governor Kazuo Ueda
This affirmation further punctuates the BoJ’s determination to tackle inflation fears, a pledge expected to shape its next moves on interest rates.
Outlook for the Eurozone and Japan
Traders and analysts alike are hungry to see how all of these trends will play out. They are particularly intent on influencing the first monthly release of their new economic indicator on December 18, 2025. The ECB governs three main short-term interest rates, one of which is the rate on the deposit facility. This rate is very important because it mainly determines how banks would ideally like to invest their money at the central bank.