- EUR/JPY struggles to capitalize on Monday’s recovery from a nearly one-month low.
- Intervention fears and geopolitical risks revive demand for the JPY and exert pressure.
- The BoJ rate-hike uncertainty cap gains for the JPY and helps limit losses for the cross.
The EUR/JPY cross meets with a fresh supply during the Asian session on Tuesday and reverses a part of the previous day's recovery move from the 50-day Simple Moving Average (SMA), around the 162.25 region, or a nearly one-month low. The intraday slide is sponsored by the emergence of fresh buying around the Japanese Yen (JPY) and drags spot prices back closer to the 163.00 mark in the last hour, though lacks follow-through.
Geopolitical tensions escalated after the Biden administration approved Ukraine’s use of long-range US weapons deeper inside Russia, which has deployed North Korean troops to reinforce its war. This, along with speculations that Japanese authorities will intervene in the FX market to prop up the domestic currency, turn out to be key factors undermining the safe-haven JPY and exerting some downward pressure on the EUR/JPY cross.
The shared currency, on the other hand, struggles to lure buyers amid bets for more aggressive rate cuts by the European Central Bank (ECB) on the black of a bleak Eurozone economic outlook. Adding to this, US President-elect Donald Trump's protectionist policies pose additional threats to the Eurozone economy. This might continue to weigh on the Euro and suggests that the path of least resistance for the EUR/JPY cross is to the downside.
That said, the uncertainty over the timing of another interest rate hike by the Bank of Japan (BoJ) could act as a headwind for the JPY amid a generally positive risk tone. This, in turn, could assist the EUR/JPY cross to attract some dip-buyers and help limit the downside near the 50-day SMA. The said support should act as a key pivotal point, which if broken should pave the way for the resumption of the recent corrective slide from a multi-year top.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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