EUR/JPY continues drifting higher on wide interest-rate differential, lack of intervention


  • EUR/JPY extends its uptrend as the Euro outperforms the Japanese Yen due to the higher interest rates in the Eurozone. 
  • After suspected direct intervention by the Japanese authorities to strengthen the Yen in early May there have been no follow ups. 
  • Weak data from Japan has lowered expectations the BoJ will be in a position to continue raising interest rates, further weakening JPY. 

EUR/JPY extends its uptrend on Monday, clocking up gains of over two-tenths of a percent to reach 169.50s, as the wide interest-rate differential between the Eurozone and Japan continues to favor the Euro (EUR) over the Japanese Yen (JPY) – relatively higher interest rates attract greater foreign capital inflows. 

Additionally, in the absence of recent direct intervention in currency markets by the Japanese authorities to strengthen the JPY, the pair has been allowed to creep higher. The last time a suspected intervention took place was in late April and early May when EUR/JPY experienced sharp declines for no apparent reason leading to unconfirmed speculations of intervention. 

The Bank of Japan’s (BoJ) decision to not repeat a reduction in its bond buying operations on May 17 despite doing so on May 13 further led the JPY to weaken. Reductions to bond buying are seen as a form of policy tightening – like raising interest rates – thus the decision not to go ahead was seen as a slight shift to an easier stance.  

A string of weak data releases in Japan, including a surprise 2.0% annualized drop in Q1 GDP, Tokyo CPI coming out lower than expected, and weak wage growth data in Q1 further suggest the BoJ will probably delay its next interest rate hike, after a one-off raise in March, giving EUR/JPY a back wind.

The Euro, meanwhile, is strengthening as positive data for the region suggests the European Central Bank (ECB) will not need to cut interest rates as quickly as previously thought, in order to stimulate economic growth. Q1 GDP data showed a 0.3% rise after two quarters of contraction and the strongest quarter of growth since Q3 of 2022. The Euro was also supported by relatively strong Eurozone PMI data for April. 

The ECB is widely expected to cut interest rates in June but recent comments from ECB board member Isabel Schnabel suggested the governing council might not follow up the cut in June with a cut in July. On Monday ECB policymaker Martin Kazaks gave the go ahead for rate cuts, saying inflation was gradually falling to the ECB’s 2.0% target, however, he added “the process (of cutting interest rates) needs to be gradual and we must not rush it.”

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD trades sideways below 0.6700, as US Dollar stalls decline

AUD/USD trades sideways below 0.6700, as US Dollar stalls decline

AUD/USD has reversed early gains to trade flat below 0.6700 in Asian trading on Thursday. The pair loses upside traction, as the US Dollar attempts a tepid recovery amid a cautious market mood and PBOC's status-quo. The focus shifts to mid-tier US data and Fedspeak. 

AUD/USD News

USD/JPY defends 158.00 as markets turn risk averse

USD/JPY defends 158.00 as markets turn risk averse

USD/JPY is defending the 158.00 level in the Asian trading hours on Thursday, lacking a clear directional impetus, as investors look for fresh cues on the Fed’s rate-cut timeframe. A risk-averse market environment helps curb the US Dollar downside, lending support to the pair. 

USD/JPY News

Gold price holds near weekly high as US Dollar stabilizes ahead of data

Gold price holds near weekly high as US Dollar stabilizes ahead of data

Gold price resumes upside on Thursday amid September Fed rate-cut bets. Geopolitical risks and political uncertainty in Europe also lend support to the XAU/USD. Stabilizing US Dollar alongside the US bond yields rebound keep Gold price below the 50-day SMA. 

Gold News

Bitcoin price continues to plummet as whale activities deepen

Bitcoin price continues to plummet as whale activities deepen

Bitcoin's price fell below $65,000 on Wednesday following Increased whale activities that may be sell orders. Meanwhile, hedge funds have experienced a drag in their Bitcoin exposure, which may be fueled by consistent outflows among Bitcoin ETFs.

Read more

Will the BoE signal that rate cuts are looming?

Will the BoE signal that rate cuts are looming?

At its latest gathering, the Bank of England appeared dovish enough to encourage market participants to assign a decent chance for a first quarter-point rate cut in June, but that didn’t last for long as the hotter-than-expected inflation data for April prompted investors to take their summer rate cut bets off the table.

Read more

Forex MAJORS

Cryptocurrencies

Signatures