EUR/JPY trades around 169.50, just shy of 11-month highs
- EUR/JPY maintains its position near an 11-month high of 169.72, reached on Monday.
- The Japanese Yen gains ground due to hopes of further rate hikes by the BoJ in the coming month.
- ECB’s Villeroy noted that the central bank may cut interest rates.
EUR/JPY remains steady after registering over 0.50% losses in the previous session, trading around 169.30 during the Asian hours on Thursday. However, the currency cross faced challenges as the Japanese Yen (JPY) received support as traders still expect further rate hikes by the Bank of Japan (BoJ) in the coming month.
Latest data showed that Japan's core inflation climbed to a more than two-year high in May and remained above the central bank's 2% target, along with the better-than-expected Japan's PMI, keeping the door open for rate hikes.
However, the BoJ’s summary indicated that many policymakers called for keeping interest rates unchanged for some time amid uncertainty over the impact of US tariffs on Japan's economy. Many members also suggested that the effects of US tariff policies are yet to materialize, and the impact will certainly exert downward pressure on firms’ sentiment.
On Thursday, Japan's top trade negotiator, Ryosei Akazawa, noted that Japan cannot accept 25% auto tariffs. Akazawa also said that officials will continue tariff talks with the United States (US).
European Central Bank (ECB) policymaker Francois Villeroy de Galhau said, on Tuesday, that the central bank could still cut interest rates despite the volatility seen in the Oil market. "If we look at the present assessment of markets so far, inflation expectations remain moderate," Villeroy added.
Meanwhile, ECB chief economist Philip Lane said that "Our monetary policy will have to take into account not only the most likely path (the baseline) but also the risks to activity and inflation," per Reuters.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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