- EUR/JPY loses momentum around 161.95 in Friday’s Asian session.
- BoJ’s Ueda reaffirmed his resolve to hike, if inflation stayed on course to sustainably hit the 2% target.
- ECB’s Kazaks said he’s ready to discuss another interest rate cut at the September meeting.
The EUR/JPY cross weakens to near 161.95, snapping the two-day winning streak on Friday during the Asian trading hours. The Japanese Yen (JPY) strengthens amid hawkish remarks from the Bank of Japan’s (BoJ) Governor Kazuo Ueda.
BoJ Governor Kazuo Ueda told the Japanese parliament on Friday that the Japanese central bank raised the interest rate in July as the economy and inflation moved in line with price target protections. Ueda further stated that he expects to adjust policy if the economy moves as planned while saying that the BoJ's policy path to a neutral interest rate remains highly uncertain. Hawkish remarks from Japanese authorities are likely to support the JPY in the near term.
Additionally, Japan’s Consumer Price Index (CPI) inflation in July remained above the BoJ’s 2% target, heightening expectations for the Japanese central bank to raise rates again. The Core CPI inflation, which strips out prices of fresh food, rose to 2.7% YoY in July from 2.6% in June, in line with the market expectation. The headline National CPI climbed 2.8% YoY in July, compared to 2.8% in the previous reading, the Japan Statistics Bureau reported on Friday.
On the other hand, investors anticipate the European Central Bank (ECB) to further loosen its monetary policy, which weighs on the Euro (EUR). The markets have priced in nearly a 90% chance of a 25 basis points (bps) cut in the deposit rate to 3.5% in September and see at least one more move before the end of the year. European Central Bank (ECB) Governing Council member Martins Kazaks said on Thursday that he’s ready to discuss another interest rate cut at the September meeting, voicing confidence in inflation returning to 2% as well as worries over the economy, per Bloomberg.
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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