EUR/JPY trims losses near 172.50 after report Japan PM Ishiba to resign

EUR/JPY trades on a positive note near 172.40 in Wednesday’s Asian session.
Japan’s Ishiba is reported to step down by the end of August, weighing on the Japanese Yen.
The ECB is expected to hold rates at the July meeting on Thursday.

Lallalit Srijandorn FXStreet

The EUR/JPY cross pares losses to around 172.40 during the Asian trading hours on Wednesday. The Japanese Yen (JPY) weakens against the Euro (EUR) after the report that Japanese Prime Minister Shigeru Ishiba is to step down.

On Wednesday, Japanese Prime Minister Shigeru Ishiba is reported to resign by the end of August. This follows the defeat of his ruling Liberal Democratic Party (LDP) in the upper house in Sunday's election. The Japanese Yen faces some selling pressure following these headlines.

On the other hand, US President Donald Trump said the United States (US) has agreed to a trade deal with Japan. This, in turn, might help limit the JPY’s losses. Trump on Wednesday announced a “massive” deal with Japan that includes “reciprocal” tariffs of 15% on the country’s exports to the US. Trump added that Japan will invest $550 billion into the US and will open their country to trade, including cars and trucks, rice and certain other agricultural products, and other things.”

Traders await the European Central Bank (ECB) interest rate decision on Thursday, with no change in rates expected. After eight quarter-point cuts that brought the deposit rate to 2.0%, ECB President Christine Lagarde said last month that the easing cycle is coming to an end. ECB policymakers believe they are well-positioned to deal with what comes next.

Traders will also closely monitor the ECB Press Conference. Any hawkish remarks from ECB policymakers could support the EUR, while a dovish tone could weigh on the shared currency in the near term.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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 BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, 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 supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact 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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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