EUR/JPY rises to near 162.50 as BoJ maintains policy rate as expected
- EUR/JPY advances as the Japanese Yen weakens as the BoJ left its key interest rate unchanged at 0.5% on Thursday.
- The BoJ also lowered its median core CPI forecast for fiscal 2026 to 1.7%, down from 2.0% in January.
- Markets have largely priced in a 25 basis point rate cut by the European Central Bank (ECB) at its June meeting.
EUR/JPY halts its three-day losing streak, rebounding to around 162.50 during Asian trading hours on Thursday. The recovery in the currency cross comes as the Japanese Yen (JPY) weakens across the board, following the Bank of Japan’s (BoJ) widely expected decision to maintain its policy rate.
As anticipated, the BoJ left its key interest rate unchanged at 0.5% on Thursday amid lingering uncertainty over US tariffs. In its policy statement, the central bank reiterated its commitment to gradually raise interest rates if the economy and inflation progress in line with projections.
Notably, the BoJ revised its median core CPI forecast for fiscal 2026 to 1.7%, down from 2.0% in January. However, it maintained that inflation is likely to hover around its 2% target during the latter half of the projection period through 2027.
Attention now turns to the post-meeting press conference, where comments from BoJ Governor Kazuo Ueda will be closely watched for insights into the future path of rate hikes, which could significantly influence JPY movement in the near term.
Adding to the JPY’s weakness, earlier remarks from US President Donald Trump sparked renewed optimism over a potential easing in US-China trade tensions. This, in turn, weighed on demand for traditional safe-haven assets like the Yen.
Meanwhile, the Euro (EUR) trades with caution following the release of soft preliminary April Harmonized Index of Consumer Prices (HICP) data from Germany and France, alongside stable readings from Italy and Spain. The inflation data suggest moderate price pressures across the Eurozone’s largest economies, reinforcing expectations of further policy easing from the European Central Bank (ECB).
Markets have nearly priced in a 25 basis point rate cut at the ECB’s June policy meeting, with officials projecting further declines in inflation and economic activity in response to recent US-imposed tariffs on trading partners.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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