EUR/JPY returns above 177.00, Yen eases ahead of the BoJ's decision
- The Euro bounces from lows and returns to levels beyond 177.00.
- The Yen loses ground across the board with the Fed and BoJ decisions in Focus.
- US Treasury Secretary Bessent has defended the independence of the Japanese central bank.
The Euro reversal from Monday's highs at 178.23 against the Japanese Yen has been halted at the 176.65 area on Wednesday's Early European session, and the pair bounced back to levels above 177.30 at the time of writing, which keeps the pair's broader bullish trend intact.
The Yen is trimming previous gains on Wednesday, with most major currencies wavering within previous ranges as the market braces for monetary policy decisions by the Federal Reserve (Fed), the Bank of Japan (BoJ), and the European Central Bank (ECB), all of them within the next 24 hours.
The BoJ is expected to delay interest rate hikes
The BoJ is widely expected to leave interest rates unchanged at 0.5%, and investors scrutinize Governour Ueda's speech for some validation of the market expectations that the bank will hike rates in December or January at the latest. Traders will also be looking at the voting split, expecting an increase in the number of dissenters, calling for an immediate cut to two or three from one in September.
Later on Thursday, the ECB will, highly likely, leave its benchmark interest rate unchanged. In this case, the interest will be on assessing whether the bank has reached the end of its easing cycle or if there is room for further decline.
Earlier on the day, US Treasury Secretary Scott Bessent praised Japan PM Takaichi's expansive monetary policy, but has defended the independence of the Bank of Japan, adding pressure bank to keep normalising its monetary policy.
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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