EUR/JPY holds above 161.50 on Japan’s PM Ishiba’s dovish turn

EUR/JPY holds positive ground near 161.85 in Thursday’s early Asian session.
Japan’s PM Ishiba’s dovish turn exerts some selling pressure on the Japanese Yen.
Investors expect the ECB to cut the rates in the October meeting.

The EUR/JPY cross gains traction to around 161.85 during the early European session on Thursday. The Japanese Yen (JPY) weakens as Japan’s Prime Minister Shigeru Ishiba said that the country is not ready for a rate hike.

Prime Minister Shigeru Ishiba said after a meeting with Bank of Japan (BoJ) Governor Kazuo Ueda on Wednesday that Japan is not in an environment for a further rate increase. Traders reduce their bets on a near-term interest rate hike following Ishiba's remarks.

Meanwhile, Ueda stated that the Japanese central bank would move cautiously about the monetary policy in the future. BOJ board member Asahi Noguchi said on Thursday that the central bank should continue its accommodative monetary policy for the time being, adding that it would take time to shift the perception that prices will not rise significantly in the future. Traders are now pricing in less than 50% odds that the BoJ would hike by 10 basis points (bps) before the year-end, according to LSEG data.

The rising speculation that the European Central Bank (ECB) will cut interest rates in October might undermine the Euro (EUR) and cap the upside of the cross. Earlier this week, the Eurozone inflation fell to 1.8% YoY in September, below the central bank's 2% target. ECB policymaker Martins Kazaks said on Wednesday that the central bank has a "clear-cut" argument for rate reduction at its next meeting as the Eurozone's economy might reach a tipping point.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.