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EUR/JPY weakens to near 162.00 amid dovish ECB, intervention fears

  • EUR/JPY edges lower to near 162.15 in Monday’s early European session, down 0.20% on the day. 
  • A dovish ECB could undermine the shared currency in the near term. 
  • BOJ policymaker said the bank must scrutinize risks and avoid premature rate hikes. 

The EUR/JPY cross attracts some sellers to around 162.15 during the early European session on Monday. The dovish tone of the European Central Bank (ECB) officials continues to weigh on the Euro (EUR) against the Japanese Yen (JPY). Investors will focus on ECB President Christine Lagarde's speech on Tuesday for fresh catalysts. 

The rising speculation that the ECB may accelerate its pace of policy easing could exert some selling pressure on the EUR. The ECB lowered the deposit rate by a further 25 basis points (bps) at its October meeting. President Christine Lagarde said during the press conference that there is “probably” more downside than upside risk to the ECB’s inflation forecast. 

Lagarde added that the central bank will not pre-commit to any particular rate path and would analyze all available data between now and December before deciding the next steps. ECB policymaker François Villeroy de Galhau said on Saturday that the Euro-area consumer price growth probably will be at the ECB’s 2% target in early 2025, per Bloomberg.

On the other hand, the verbal intervention from Japanese authorities supports the JPY. On Friday, Japan's top currency diplomat, Atsushi Mimura, stated that the officials will monitor the foreign exchange moves with a high sense of urgency. 

Nonetheless, the uncertainty over the timing and pace of further rate hikes by the Bank of Japan (BoJ) should cap the upside for the JPY and create a tailwind for EUR/JPY. The BoJ policymaker Seiji Adachi said last week that the Japanese central bank must raise interest rates at a "very moderate" pace and avoid hiking prematurely. 

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 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.

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.

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

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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