EUR/JPY hits fresh yearly highs above 172.60 amid a brighter market mood
- The Euro extends gains to fresh one-year lows, but technical indicators are showing signs of exhaustion
- A brighter market mood after the upbeat Chinese GDP data is weighing on the safe-haven Yen.
- In Europe, hopes of a trade deal with the US keep the Euro buoyed.
The Euro appreciated for the third consecutive day on Tuesday, to reach levels above 172.60 for the first time since July last year, with the safe-haven Yen weighed by a somewhat brighter market mood on Tuesday.
The pair, however, is starting to look overstretched in most timeframes, following a nearly 7% rally from late May lows and a more than 10% appreciation since late February. The 4-hour RSI is showing a bearish divergence, a sign often anticipating significant corrections.
Positive data from China and hopes of a EU-US deal are fuelling the EUR/JPY rally
In the macroeconomic front, China’s upbeat GDP and Industrial Production figures seen earlier today have improved investors’ confidence in the strength of the world’s second-largest economy and eased concerns about the impact of Trump’s tariffs on the global growth outlook.
These views have undermined support for the safe haven Japanese Yen, which is one of the worst G8 performers on Tuesday.
In the Eurozone, the ongoing trade talks between EU and US representatives, and the positive comments from the European side, are feeding hopes that the 30% levy announced by President Trump over the weekend can still be avoided. This feeling is contributing to buoy the Euro against its main peers on Tuesday.
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 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.
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.
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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