EUR/JPY weakens as ECB holds rates and BoJ hike bets support the Yen

• EUR/JPY edges lower as ECB holds rates and BoJ hike expectations support the Yen.
• ECB sticks to a data-dependent stance, offering no forward guidance.
• Investors await BoJ interest rate decision and signals on further rate increases.

The Euro (EUR) trades on the back foot against the Japanese Yen (JPY) on Thursday, as the European Central Bank’s (ECB) decision to keep interest rates unchanged failed to weaken the Yen, which remains supported by firm expectations of a Bank of Japan (BoJ) rate hike on Friday.

At the time of writing, EUR/JPY is trading around 182.35, edging modestly lower after reaching a daily high near 183.17.

The ECB left borrowing costs unchanged for a fourth consecutive meeting, keeping interest rates on the Deposit Facility, the Main Refinancing Operations and the Marginal Lending Facility steady at 2.00%, 2.15% and 2.40%, respectively, in line with market expectations.

In its monetary policy statement, the ECB’s Governing Council reiterated its commitment to ensuring that inflation stabilises at its 2% target over the medium term. Policymakers noted that interest rate decisions will continue to be taken on a meeting-by-meeting basis and depend on incoming economic and financial data, the inflation outlook, and underlying price pressure.

Speaking at the post-meeting press conference, ECB President Christine Lagarde said there was no discussion on interest rate hikes or cuts at this meeting, stressing that the central bank cannot offer forward guidance amid elevated uncertainty. Lagarde noted that the Eurozone economy has shown resilience but warned that a challenging global trade environment is likely to weigh on growth, while adding that the inflation outlook remains more uncertain than usual. She also said a stronger Euro could help ease inflation pressure over time.

In Japan, attention turns squarely to the Bank of Japan’s (BoJ) interest rate decision, with markets widely expecting a 25-basis-point hike from 0.50% to 0.75%, as inflation remains above the central bank’s target and wage growth continues to improve. With the move largely priced in, the focus shifts to Governor Kazuo Ueda’s guidance on the timing and extent of any further rate increases.