EUR/JPY softens below 165.00 as US dollar soft as trade uncertainty mounts
- EUR/JPY edges lower to around 164.85 in Monday’s early Asian session.
Rising safe haven demand and speculation over interest rate hikes by the BOJ boost the JPY.
ECB’s Lagarde said they are in a good position, after cutting rates to 2%.
The EUR/JPY cross weakens to near 164.85, snapping the two-day winning streak during the early European session on Monday. The Japanese Yen (JPY) strengthens against the Euro (EUR) amid the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates. The Eurozone Sentix Investor Confidence data for June is due later on Monday.
Japan’s Gross Domestic Product (GDP) shrank at an annual rate of 0.2% in Q1, compared to the initial estimate of a 0.7% fall, Japan’s Cabinet Office showed on Monday. Meanwhile, The Japanese economy showed no growth over the quarter in the first quarter (Q1) of 2025, coming in above the market expectation and the previous estimate of -0.2%.
An upward revision of Japan’s Q1 GDP has reaffirmed BoJ rate hike bets and underpinned the JPY. The Japanese central bank is set to hold a two-day policy meeting next week.
On the Euro front, the European Central Bank (ECB) announced last week that it lowered key rates by 25 basis points (bps) after the June policy meeting. ECB President Christine Lagarde said that they might be approaching the end of the easing cycle. Lagarde further stated over the weekend that the central bank rates are now in a "good position" despite the extremely high uncertainty being triggered by US President Donald Trump's tariff threats.
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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