EUR/JPY hovers near multi-year highs 171.50, Japan’s intervention fears intensify

The EUR/JPY trades close to multi-year highs around 171.50 in Wednesday’s American session. The cross is expected to face selling pressure as the Japanese Yen could gain significantly with Japan’s intervention against excessive FX volatility moves.

Fears of Japan intervention to provide cushion to weak Yen have deepened as the currency has declined to lowest levels of 160.39 since 1986 against the US Dollar (USD).

The Japanese Yen has remained under pressure despite growing speculation that the Bank of Japan (BoJ) will raise interest rates again sooner. The expectations for further policy-tightening have improved as weak Yen is resulting in higher inflation by making exports competitive in global markets and increasing import costs. The BoJ minutes for the latest meeting showed that one member advocated for an increase "without too much delay" to help bring inflation back down, Reuters reported.

Meanwhile, the Euro is also under pressure due to rising expectations that the European Central Bank (ECB) will deliver subsequent rate cuts. The probability of more rate cuts by the ECB has been prompted by deteriorating economic prospects of Eurozone’s largest economy.

German IFO data that exhibits market sentiment over economy’s current position and forward outlook indicated a gloomy picture. The IFO Business Climate, an early indicator of current conditions and business expectations in Germany, surprisingly declined to 88.6 for June.