EUR/JPY moves sideways near 156.70, BoJ keeps the policy rate unchanged

EUR/JPY extends its gains for the second consecutive day, trading higher around 156.70 during the Asian session on Tuesday. The Bank of Japan (BoJ) announced its Interest Rate Decision on Tuesday, keeping the cash rate at -0.1% as anticipated. Investors await BoJ Governor Kazuo Ueda's press conference for insights into economic conditions, which might influence the potential exit from the ultra-dovish monetary policy in January.

BoJ Monetary Policy Statement shows that BoJ has decided to maintain the 1.0% reference rate for the 10-year Japanese Government Bond (JGB) yield. The central bank notes a moderate recovery in the economy, with private consumption steadily increasing. Inflation expectations have also risen moderately. The projection for Japan's economy is optimistic, foreseeing continued growth above the potential growth rate. Additionally, the rate of increase in the Consumer Price Index (CPI) is expected to remain above 2% through fiscal 2024.

The situation in the Middle East has led to increased geopolitical tensions, prompting some investors to seek safety in the Japanese Yen (JPY). Houthi militants conducted attacks on commercial vessels in the Red Sea. On the other side, Israeli strikes in Gaza have resulted in additional Palestinian casualties, and Hamas has stated that talks will not take place until Israeli bombardment ceases.

The IFO Institute's recent report disclosed that the German Business Climate for December dipped to 86.4 compared to the previous 87.2, falling below the expected 87.8. The Current Assessment also saw a decline from 89.4 to 88.5, while the Expectations Index eased from 85.1 to 84.3 in the same period.

The deteriorating economic conditions in Germany may hinder the Euro's (EUR) gains against the Japanese Yen. Investors look forward to Tuesday's release of November's Eurozone Harmonized Index of Consumer Prices (HICP) for further market insights.