EUR/JPY attracts some sellers to near 163.50 as safe-haven demand grows
- EUR/JPY tumbles to near 163.50 in Monday’s early European session.
- Uncertainty surrounding Trump's tariffs underpins safe-haven currencies like the JPY.
- Eurozone inflation surges in April.
The EUR/JPY cross extends the decline to around 163.50 during the early European session on Monday. The Japanese Yen (JPY) edges higher against the Euro (EUR) on the rising safe-haven demand amid the economic uncertainty. The Eurozone Sentix Investor Confidence is due later on Monday. Trading activity is expected to remain subdued on Monday due to a public holiday in Japan.
US President Donald Trump reiterated that China was open to a trade deal but offered no concrete details or timeline. Additionally, Trump noted that the US has no plans to speak with Xi Jinping this week. Investor sentiment shifts sour due to persistent global trade uncertainties, which provide some support to the JPY and act as a headwind for the cross.
The Bank of Japan (BoJ) kept its interest rate unchanged at 0.5% by a unanimous vote and cut its growth forecast last week. The dovish guidance by the Japanese central bank might be the upside for the JPY in the near term. The BOJ slashed its economic growth forecast for the fiscal year ending March 2026 to 0.5% from 1.1% projected three months ago. It also cut its growth forecast to a 0.7% expansion for the following fiscal year from 1.0% in January.
On the EUR’s front, Eurozone inflation rose more than expected in April, potentially complicating the European Central Bank’s (ECB) path to lower interest rates further in the coming months. ECB President Christine Lagarde said the central bank would be data dependent when making interest rate decisions. The ECB last cut interest rates in April, bringing its deposit facility rate to 2.25%, down from highs of 4.00% in mid-2023.
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.
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