EUR/JPY gains ground below the mid-162.00s, eyes on BoJ rate decision

The EUR/JPY pair trades on a stronger note below the mid-162.00s during the Asian session on Monday. Investors increase their bets on the expectation that the Bank of Japan (BoJ) will end its ultra-dovish monetary policies in March or April. The Japanese central bank will announce its interest rate decision on Tuesday. At press time, EUR/JPY is trading at 162.35, losing 0.01% on the day.

Many European Central Bank (ECB) policymakers anticipate the first rate cut in its June meeting. ECB President Christine Lagarde signaled that June is the earliest it is likely to cut interest rates after the central bank lowered its forecasts for inflation and estimated it will reach its 2% target in 2025. Meanwhile, ECB Governing Council member Klaas Knot penciled in June for a first-rate cut and expects three rate cuts this year. ECB policymaker Yannis Stournaras stated the rate cuts as soon as July, with two more by the end of the year.

On the other hand, analysts have different opinions on whether the BoJ will raise rates in March or in April. In the case of a rate hike, the central bank is projected to raise the interest rates by 20 basis points (bps) to 0.1% from -0.1%. There is a likelihood that the BoJ will wait until April to raise the interest rate, with investors pricing in 39% odds that the BoJ will hike on Tuesday. Any dovish remarks from the Japanese policymakers might weigh on the Japanese Yen (JPY) and create a tailwind for the EUR/JPY cross. 

Looking ahead, market participants will focus on the Eurozone Harmonized Index of Consumer Prices (HICP) and Trade Balance , due on Monday. The highlight on Tuesday will be the BoJ interest rate decision. Also, the ZEW Survey from Germany and the Eurozone will be due later on Tuesday. Traders will take cues from the data and find trading opportunities around the EUR/JPY cross.