EUR/JPY attracts some buyers above 164.00 amid BoJ rate hike uncertainty
- EUR/JPY gains momentum to around 164.25 in Tuesday’s early European session, up 0.32% on the day.
- The Japanese Yen tumbles amid BoJ rate hike uncertainty.
- Investors brace for the preliminary reading of the Eurozone HICP inflation data, which is due late on Tuesday.
The EUR/JPY cross extends the rally to near 164.25 during the early European session on Tuesday. The Japanese Yen (JPY) weakens amid the uncertainty about the timing of the Bank of Japan's (BoJ) next interest rate hike. The preliminary reading of the Eurozone Harmonized Index of Consumer Prices (HICP) for December will be the highlight later on Tuesday.
BoJ Governor Kazuo Ueda said that the "timing of adjusting monetary support depends on economic, price and financial developments. Ueda’s comments didn’t offer any hints about the timing of a rate hike. This, in turn, could undermine the JPY and create a headwind for EUR/JPY.
Nonetheless, the fresh verbal intervention from the Japanese authorities might boost the JPY and cap the downside for EUR/JPY. On Tuesday, Japan Finance Minister Katsunobu Kato said, "The Japanese government has been alarmed by foreign exchange developments, including those driven by speculators, and will take appropriate action against excessive moves.”
On the Euro front, the stronger-than-expected PMI data from Spain, Italy, France, Germany, and the Eurozone support the shared currency. Investors will take more cues from the Eurozone inflation data, which might influence market expectations for the likely European Central Bank (ECB) interest rate reductions in the next meeting.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
