EUR/JPY dives to multi-day low, closer to mid-161.00s amid notable JPY buying

EUR/JPY attracts sellers for the second straight day amid a goodish pickup in the JPY demand.
Geopolitical risks, along with bets for additional BoJ rate hike in 2024, lend support to the JPY.
The ECB’s dovish outlook contributes to the Euro’s underperformance and the ongoing decline.

Haresh Menghani FXStreet

The EUR/JPY cross turns lower for the second straight day following an Asian session uptick to the 163.20 area and moves away from over a two-week high, around the 163.85-163.90 region touched on Friday. Spot prices drop to a multi-day low, closer to mid-161.00s in the last hour and seem vulnerable to slide further amid a strong pickup in demand for the Japanese Yen (JPY).

Investors remain concerned about the risk of a further escalation of geopolitical tensions in the Middle East, which drives some haven flows towards the JPY and exerts downward pressure on the EUR/JPY cross. The market worries resurfaced after Hamas published an official statement rejecting the terms for a hostage release-ceasefire deal discussed in Doha last week. This, along with hawkish Bank of Japan (BoJ) expectations, underpins the JPY.

Japan’s second-quarter Gross Domestic Product (GDP) print released on Thursday surpassed consensus estimates on a quarterly as well as an annualized basis. Adding to this, data published this Monday showed that Machinery Orders in June surpassed consensus estimates and rose by 2.1% in June 2024. This signaled an improving demand and macroeconomic environment, which should encourage the BoJ to raise interest rates again later this year.

In contrast, the markets have been pricing in the possibility that the European Central Bank (ECB) will cut rates again in the wake of declining inflation in the Eurozone and downbeat economic outlook. This, in turn, contributes to the shared currency's relative underperformance against its Japanese counterpart and exerts additional pressure on the EUR/JPY cross, though a positive risk tone might cap the JPY and help limit any further losses.

The market attention now shifts to the release of the flash Eurozone PMIs on Thursday, which should provide fresh insight into the region's economic health and drive the Euro. In the meantime, the JPY price dynamics will continue to play a key role in influencing the EUR/JPY cross in the absence of any relevant market-moving economic data due for release on Monday.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD tests 1.1800, closes in on a fresh two-month high

EUR/USD extends its gains for the second consecutive day on Tuesday and trades near 1.1800. The broad-based US Dollar weakness and a potential policy divergence between the European Central Bank and the Federal Reserve keep the bullish bias intact heading into the holiday season.

GBP/USD climbs above 1.3500 area, renews 11-week peak

GBP/USD extends its weekly rally and trades at its highest level since early October above 1.3500. The US Dollar remains under persistent bearish pressure heading into the Christmas break, while Pound traders largely brush off the latest interest rate cut from the Bank of England.

Gold approaches $4,500 as record-setting rally continues

Gold builds on Monday's impressive gains and advances toward $4,500, setting fresh record-highs along the way. Heightened geopolitical tensions, combined with the ongoing US Dollar (USD) selloff ahead of the Q3 GDP data, help XAU/USD preserve its bullish momentum.

US GDP expected to highlight steady growth in Q3

The United States Bureau of Economic Analysis (BEA) will publish the first preliminary estimate of the third-quarter Gross Domestic Product on Tuesday, at 13:30 GMT. Analysts expect the data to show annualized growth of 3.2%, following the 3.8% expansion in the previous quarter.

Ten questions that matter going into 2026

2026 may be less about a neat “base case” and more about a regime shift—the market can reprice what matters most (growth, inflation, fiscal, geopolitics, concentration). The biggest trap is false comfort: the same trades can look defensive… right up until they become crowded.

XRP steadies above $1.90 support as fund inflows and retail demand rise

Ripple (XRP) is stable above support at $1.90 at the time of writing on Monday, after several attempts to break above the $2.00 hurdle failed to materialize last week. Meanwhile, institutional interest in the cross-border remittance token has remained steady.