EUR/JPY rallies to 164.50 as BoJ guided accommodative financial conditions

The EUR/JPY rises to 164.50 in Wednesday’s early American session. The cross strengthens amid broad selling in the Japanese Yen after Bank of Japan (BoJ) Governor Kazuo Ueda didn’t provide guidance on future policy steps or the pace of policy normalization.

Apart from that, the BoJ pledges to keep its policy stance accommodative for the time being. The BoJ’s decision to exit its negative interest rate policy, along with the maintenance of an accommodative stance, indicates that the central bank is unsure that the wage growth cycle is strong enough to keep inflation sustainably above 2%.

Meanwhile, the Euro holds strength against the Japanese Yen despite European Central Bank (ECB) President Christine Lagarde delivering a slight dovish guidance on interest rates. ECB Lagarde said “The latest wage data points in an encouraging direction.” This indicates that the wage growth is getting consistent with the pace required to bring down inflation to the 2% target. Slowing wage growth would deepen expectations for the ECB to begin reducing interest rates from the June policy meeting.

Apart from that, Lagarde’s confidence that the central bank will get evidence of inflation easing to 2% has increased speculation for interest rates reducing from June. ECB Lagarde said, “In the coming months, we expect to have two important pieces of evidence that could raise our confidence level sufficiently for a first policy move.”