- EUR/JPY weakens to nearly 174.20 in Thursday’s Asian session.
- The fear of FX intervention from Japanese authorities supports the JPY and drags the cross lower.
- The outcome of second round vote of the French parliamentary elections on Sunday might add volatility to the EUR.
The EUR/JPY cross trades on a weaker note around 174.20, snapping the six-day winning streak during the Asian session on Thursday. The fear of foreign exchange (FX) intervention from Japanese authorities lifts the Japanese Yen (JPY). Later on Thursday, the German Factory Orders for May and ECB Monetary Policy Meeting Accounts will be released.
The growing speculation of FX intervention from the Japanese authorities provides some support to the JPY and caps the cross’s upside. Rabobank FX strategists said that the FX intervention could be imminent due to the weakness of the Japanese Yen, which is exerting downward pressure on consumer confidence.
Data released on Wednesday showed that the final reading of Japan’s Services PMI dropped to 49.4 in June from 49.8 in May. This figure registered the largest downward movement since January 2022 and was among the biggest on record. This, in turn, might undermine the JPY and create a tailwind for the cross.
On the Euro front, the far right's hopes of winning outright in the French election fell on Tuesday, as centrist and left-wing candidates reluctantly banded together to stop Marine Le Pen's National Rally from seizing power for the first time, per Politico. However, the announcement of the French parliamentary elections on Sunday might add volatility to the EUR.
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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