EUR/JPY slips below 186.50 following BoJ policy decision
- EUR/JPY holds losses after the Bank of Japan policy decision.
- The BoJ kept its short-term rate at 0.75% on Tuesday, as expected.
- ECB is expected to keep its deposit rate at 2.0% on Thursday.
EUR/JPY remains subdued after two days of gains, trading around 186.40 during the Asian hours on Tuesday. The currency cross holds losses following the release of the Bank of Japan (BoJ) policy decision.
The Bank of Japan left its short-term rate unchanged at 0.75% after its two-day policy meeting Tuesday, in line with expectations. The decision passed 6–3, with board members Nakagawa, Takata, and Naoki Tamura dissenting and proposing a hike to 1.0%.
BoJ’s Nakagawa said while situation in middle east remained unclear, given economic developments, risks to prices were skewed to the upside under accommodative financial conditions. While, Takata said price stability target had been more or less achieved and that risks to prices in japan were already skewed to the upside due to the second-round effects of price rises stemming from overseas developments.
Economists expect the European Central Bank (ECB) to leave policy unchanged at Thursday’s meeting, maintaining its benchmark deposit rate at 2.0%, where it has remained since June last year.
ECB policymakers are likely to adopt a wait-and-see approach amid elevated economic uncertainty driven by the Middle East conflict. ECB official Martins Kazaks said last week that “we still have the large luxury of collecting data and forming our view.”
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
