- EUR/JPY attracts some dip-buyers on Friday and recovers over 150 pips from a two-week low.
- The uptick is exclusively sponsored by the emergence of fresh selling around the Japanese Yen.
- Intervention fears and political uncertainty in France might keep a lid on any meaningful gains.
The EUR/JPY cross stages a goodish bounce from a two-week low touched during the Asian session this Friday and climbs back above the 173.00 round-figure mark in the last hour. Spot prices, for now, seem to have stalled a sharp retracement slide from the 175.40-175.45 area, or the highest level since 1992 set on Thursday amid the emergence of fresh selling around the Japanese Yen (JPY).
The overnight market reaction to speculation that Japanese authorities might have stepped into the FX market to lift the domestic currency fades rather quickly in the absence of any concrete evidence of intervention. This, along with the underlying strong bullish sentiment surrounding the equity markets, undermines the safe-haven JPY and is seen as a key factor that assists the EUR/JPY cross to attract fresh buyers on the last day of the week.
That said, the uncertainty surrounding the formation and composition of France's new government might hold back traders from placing aggressive bullish bets around the shared currency. Apart from this, bets that the Bank of Japan (BoJ) may raise interest rates and that Japanese authorities will eventually intervene to support the JPY should keep a lid on any meaningful appreciating move for the EUR/JPY cross, warranting some caution for bearish traders.
In fact, Japan's Chief Cabinet Secretary Yoshimasa Hayashi said on Friday that it is important for currencies to move in a stable manner reflecting fundamentals and that he is ready to take all possible means on forex. Furthermore, Japanese Finance Minister Shunichi Suzuki reiterated that rapid FX moves are undesirable. Hence, it will be prudent to wait for strong follow-through buying before positioning for the resumption of the recent well-established uptrend.
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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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