EUR/JPY surges above 177.50 following BoJ interest rate decision, ECB policy eyed

EUR/JPY climbs as the Japanese Yen loses ground after the BoJ decided to keep interest rates unchanged.
The JPY remains under pressure as fading safe-haven demand and optimism over a potential US-China trade deal lift market sentiment.
The Euro could receive support as the ECB is expected to hold rates steady later in the day.

Akhtar Faruqui FXStreet

EUR/JPY gains ground after two days of losses, trading around 177.50 during the Asian hours on Thursday. The currency cross receives support as the Japanese Yen (JPY) faces challenges after the Bank of Japan (BoJ) decided to keep the short-term interest rate target unchanged in the range of 0.4%- 0.5% in October.

The BoJ decision came in line with the market expectations. The Japanese central bank extended the pause to its tightening cycle into a sixth straight meeting, following a 25 basis points (bps) hike in January.

BoJ officials are expected to discuss conditions for resuming rate hikes as tariff pressures ease and domestic inflation picks up. However, the outlook is complicated by newly elected Prime Minister Sanae Takaichi’s support for a loose monetary policy stance and resistance to early tightening.

The Japanese Yen (JPY) may weaken as safe-haven demand fades amid improved market sentiment driven by optimism over a potential US-China trade deal. At the time of writing, the meeting between US President Donald Trump and Chinese President Xi Jinping is going on at a South Korean airbase near Gimhae International Airport in Busan. Both leaders are expected to discuss a wide range of issues, from fentanyl tariffs to rare-earth to soybean trade to the TikTok deal.

Traders await a slew of key economic data, like Unemployment and Gross Domestic Product (GDP) data from Germany and the Eurozone, followed by the European Central Bank (ECB) interest rate decision. The ECB is expected to hold rates steady for a third straight meeting in October, with no policy changes likely in 2025. Policymakers remain cautious amid signs of economic resilience and easing inflation.

Economic Indicator

BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.

EUR/USD treads water near 1.1800 ahead of ECB rate decision

EUR/USD is keeping its range at around 1.1800 in the European trading hours on Thursday. The pair awaits the European Central Bank interest rate decision for fresh impetus after the Eurozone inflation declined well below the central bank's 2% target.

GBP/USD drops below 1.3600 after BoE leaves rate unchanged in close vote

GBP/USD comes under bearish pressure in the second half of the day on Thursday and trades deep in the red below 1.3600. The Bank of England left the policy rate unchanged, as expected, but four members of the MPC voted for a rate cut, causing Pound Sterling to weaken against its peers.

Gold remains under selling pressure, trades below $4,900

Gold loses its traction following an earlier recovery attempt and trades below $4,900, losing about 2% on a daily basis. The persistent US Dollar (USD) strength and the modest improvement seen in market mood doesn't allow XAU/USD to reverse its direction.