EUR/JPY is attracting some sellers near 180.45 during the early European session on Monday. The Japanese Yen (JPY) rose against the Euro (EUR) due to recent comments from Bank of Japan (BoJ) Governor Kazuo Ueda. Manufacturing PMIs (HCOB) from the euro zone, Germany and France will be released later on Monday.
Bank of Japan Governor Kazuo Ueda reiterated bets on an imminent interest rate hike, pushing Japanese government bond yields to their highest levels in years. Ueda said Monday that the central bank remains on track to raise interest rates further if prices and the economy continue to develop as expected.
He also stated that the probability of achieving the Bank of Japan’s base scenario for growth and inflation is gradually increasing. Traders now expect a rate hike probability of around 76% when the BOJ makes its next decision on December 19, following Ueda’s speech, up from a probability of around 58% on Friday.
On the other hand, the euro could receive support from the growing acceptance that the European Central Bank is done cutting interest rates. European Central Bank President Christine Lagarde said last week that borrowing costs are at the “right level.” Meanwhile, ECB Governing Council member Joachim Nagel indicated that he was comfortable with the monetary policy settings.
Traders will closely monitor the preliminary reading of the euro zone’s consolidated consumer price index (HICP) on Tuesday. Harmonized CPI inflation is expected to show a 2.2% y/y increase in November, while the core CPI is expected to show a 2.5% y/y rise over the same period. Any sign of hotter-than-expected inflation data could push the EUR/JPY higher in the near term.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
