EUR/JPY rises to near 176.00 ahead of parliamentary vote for Japan’s prime minister
- EUR/JPY rises ahead of the parliamentary vote expected to confirm Sanae Takaichi as Japan’s next prime minister.
- Japan’s LDP forms coalition with Ishin to promote expansionary fiscal policies and implement spending reforms.
- The currency cross receives support from weakening safe-haven demand amid the easing US-China trade tensions.
EUR/JPY halts its four-day losing streak, trading around 175.80 during the Asian hours on Tuesday. The currency pair strengthens as the Japanese Yen (JPY) weakens ahead of a parliamentary vote likely to confirm Sanae Takaichi as Japan’s next prime minister.
The Liberal Democratic Party (LDP) formed a coalition with the Japan Innovation Party (Ishin), with both parties seeking to advance expansionary fiscal policies and spending reforms. However, uncertainty remains over the coalition’s stability and whether Takaichi will adopt a more hardline policy approach.
The Japanese Yen may find gains as the Bank of Japan (BoJ) board member Hajime Takata said Monday that the time was ripe for raising interest rates. The Japan’s central bank is widely anticipated to keep interest rates unchanged at next week’s BoJ meeting.
The EUR/JPY cross appreciates as safe-haven demand weakens amid the easing United State (US)-China trade tensions. US President Donald Trump also said he expects to reach a “fair deal” with China’s President Xi Jinping during their upcoming meeting in South Korea, signaling a possible easing of trade tensions. Disagreements over tariffs, technology, and market access remain unresolved ahead of their scheduled meeting in South Korea next week.
The Euro (EUR) struggled against major counterparts as investors weighed S&P Global Ratings’ downgrade of France against improving global risk sentiment. S&P lowered France’s credit rating to A+ from AA-, citing “elevated” budget uncertainty despite the government’s submission of its 2025 draft budget.
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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