EUR/JPY fails to breach resistance at 167.60 but remains near multi-month highs
- The Euro remains bid against the Yen with the 167.60 high at a short distance.
- The higher-than-expected Japanese inflation has failed to support the Yen.
- The BoJ monetary policy minutes cast doubts about further rate hikes.
The Euro is appreciating against the Japanese Yen for the second consecutive day on Friday, favoured by a moderately brighter market sentiment. The pair has failed to breach the 11-month high, at 167.60, but remains steady around 167.40 so far.
US President Donald Trump soothed investors earlier today, affirming that he will take two weeks to decide whether to attack Iran. These comments have boosted that a full-blown regional war could be avoided, which is curbing demand for safe havens like the yen, to the benefit of riskier-perceived assets, like the Euro.
A dovish BoJ is weighing on the Yen
On the macroeconomic front, the impact of higher-than-expected Japanese CPI figures has been subdued. Japan’s headline inflation eased to a 3.5% yearly pace in May, from 3.6% in April, but the core inflation, more relevant for the central bank, as it strips off the seasonal impact of food and energy prices, accelerated to 3.7% from 3.5% in the previous month.
The minutes from this week’s BoJ monetary policy meeting have highlighted increasing concerns about the downside risk to the economy stemming from trade uncertainties, which are prompting some board members to reconsider future rate hikes.
On Thursday, BoJ Governor Ueda cast doubts about further monetary tightening, citing he high trade uncertainties in a dovish tweak to his recent rhetoric and sent the Yen lower against its main peers.
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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