EUR/JPY declines below 184.50 as BoJ hawkish comments strengthen Japanese Yen
- EUR/JPY weakens to near 184.35 in Thursday’s Asian session.
- BoJ’s Takata warned of inflation overshoot, reinforcing expectations of further BOJ tightening.
- US tariff uncertainty could weigh on the Euro.
The EUR/JPY cross loses ground to around 184.35 during the Asian trading hours on Thursday. The Japanese Yen (JPY) strengthens against the Euro (EUR) on hawkish comments from the Bank of Japan (BoJ) policymakers. Japan’s Tokyo Consumer Price Index (CPI) and the preliminary reading of the German CPI will take center stage later on Friday.
BoJ Board Member Hajime Takata warned of inflation overshoot risks, reinforcing expectations of further BoJ tightening and lifting the JPY. Takata added that the central bank must conduct further rate hikes in a gradual manner. He said that during the process of normalizing monetary policy, it is desirable for the BoJ to avoid causing market volatility that significantly exceeds the risk premium demanded by market participants.
Nonetheless, BoJ Governor Kazuo Ueda stated that while rate hikes will continue if economic forecasts are met, the central bank will wait for data from the March and April meetings to make further decisions.
The Euro could face some selling pressure from cooling Eurozone inflation and escalating trade tensions following fresh US tariffs. The European Parliament agreed on Monday to postpone a vote on the EU's trade agreement with the US due to the higher import levies.
The US trade representative, Jamieson Greer, said on Wednesday that the US tariff rate for some countries will go up to 15% or higher from the newly imposed 10% without naming any specific trading partners or other details.
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.
Furthermore, the Japanese government nominated two academics to the BoJ policy board who are seen as advocates for continued loose monetary policy, fueling concerns about the pace of future rate hikes.
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