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EUR/JPY gains traction above 164.00 amid BoJ rate hike uncertainty

  • EUR/JPY gains momentum to near 164.35 in Wednesday’s Asian session.
  • The Japanese Yen softens as the BoJ undecided on a rate hike.
  • ECB’s Kazaks said the central bank should go on cutting interest rates gradually.

The EUR/JPY cross edges higher to around 164.35 on Wednesday during the early Asian trading hours. The Japanese Yen (JPY) weakens against the Euro (EUR) amid the Bank of Japan (BoJ) rate hike uncertainty. The flash Eurozone Gross Domestic Product (GDP) data for the third quarter (Q3) will be the highlight on Thursday. 

The BoJ summary of opinions suggested a lack of clear direction regarding the timing of a rate hike as policymakers were split on whether to raise interest rates. Additionally, the political uncertainty in Japan has raised doubts over the Japanese central bank’s ability to tighten its monetary policy further. This, in turn, weighs on the JPY and acts as a tailwind for EUR/JPY. 

On the Euro front, European Central Bank (ECB) Governing Council member Martins Kazaks said on Tuesday that the central bank should go on cutting interest rates gradually. Meanwhile, ECB policymaker Olli Rehn stated that further easing next month looks likely as disinflation in the euro area is “well on track” and the growth outlook “seems to be weakening. However, officials should remain cautious and move step by step. 

The markets have fully priced another 25 basis points (bps) rate cut from the ECB in its last meeting of the year in December. The ECB’s deposit facility is currently at 3.25%.

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.

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Lallalit Srijandorn

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.

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