EUR/JPY extends downside to near 174.00 as Japanese Yen continues to outperform
- EUR/JPY slides further to near 174.00 amid continued strength in the Japanese Yen.
- The US government shutdown has increased Yen’s safe-haven demand.
- ECB Kazaks signals that the current interest rate policy is appropriate.
The EUR/JPY pair extends its downside for the fourth trading day on Thursday. The pair slides to near 174.00 as the Japanese Yen (JPY) continues to outperform across the board. The Japanese currency has been performing well as its safe-haven appeal has increased amid the United States (US) government closure.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.40% | -0.59% | -1.86% | 0.05% | -0.86% | -0.67% | -0.24% | |
| EUR | 0.40% | -0.20% | -1.62% | 0.45% | -0.47% | -0.28% | 0.14% | |
| GBP | 0.59% | 0.20% | -1.32% | 0.65% | -0.33% | -0.08% | 0.34% | |
| JPY | 1.86% | 1.62% | 1.32% | 1.99% | 1.07% | 1.09% | 1.70% | |
| CAD | -0.05% | -0.45% | -0.65% | -1.99% | -0.86% | -0.73% | -0.31% | |
| AUD | 0.86% | 0.47% | 0.33% | -1.07% | 0.86% | 0.19% | 0.61% | |
| NZD | 0.67% | 0.28% | 0.08% | -1.09% | 0.73% | -0.19% | 0.57% | |
| CHF | 0.24% | -0.14% | -0.34% | -1.70% | 0.31% | -0.61% | -0.57% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The US government has been shut down as Republicans failed to persuade Democrats to support the short-term funding bill in the House of Senate.
Apart from the increase in the safe-haven appeal, growing expectations among market participants that the Bank of Japan (BoJ) will tighten its monetary policy further in the near term have improved the Yen’s demand.
On Tuesday, the BoJ Summary of Opinions (SOP) for the September meeting showed that officials continue to aim towards increasing interest rates if the economy and prices move in line with forecasts. However, policymakers continue to acknowledge the repercussions of US tariffs on domestic economic growth.
Meanwhile, the Euro (EUR) exhibits a mixed performance as investors struggle to gauge the next monetary policy action by the European Central Bank (ECB) in its upcoming monetary policy meetings.
During the European session, the comments from ECB policymaker and Governor of the Bank of Latvia Martins signaled that there is no need to adjust monetary policy rates unless there is any economic shock. “Rates can stay where they are if no further shocks,” Kazaks said.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
