- EUR/JPY loses traction to around 161.10 in the early stages of the European session on Tuesday, losing 0.62% on the day.
- The BoJ is expected to raise rates to the highest level in 17 years.
- The ECB’s moderate expectations weigh on the common currency.
The EUR/JPY cross falls near 161.10 during the early stages of the European session on Tuesday. The Japanese Yen strengthens against the US Dollar (USD) on growing speculation that the Bank of Japan (BoJ) will raise interest rates at its monetary policy meeting on Friday. Later on Tuesday, Germany’s ZEW survey for January will be released.
The BoJ is anticipated to raise interest rates at the next policy meeting, with markets pricing the odds of a move at nearly 92% by the conclusion of the January 23-24 policy meeting. This would raise short-term borrowing costs to levels not seen since the 2008 global financial crisis.
On Tuesday, Japan’s Deputy Finance Minister for International Affairs and top foreign exchange official, Atsushi Mimura, said, “The outlook for the US economy depends on Trump’s macroeconomic policies.” Meanwhile, Japan’s Finance Minister Katsunobu Kato stated that officials will closely monitor the impact of US policies on Japan and the global economy, adding that he expects the Japanese central bank to carry out monetary policies adequate to achieve the 2% inflation target.
On the other hand, moderate expectations for the European Central Bank (ECB) could drag the Euro (EUR) lower against the JPY. According to minutes of the ECB’s monetary policy meeting published on Thursday, policymakers agreed at the December meeting that rate cuts should be approached cautiously and gradually, but also noted that further rate cuts are likely due to weakening price pressures. Traders expect the ECB to deliver a 25 basis point (bps) rate cut at each of the ECB’s next four policy meetings, driven by concerns about the Eurozone’s economic outlook and the belief that economic pressures inflationary pressures will remain moderate.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and currency control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked on ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing of banknotes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat inflation levels that have been at record highs for decades. The Bank of Japan’s policy of keeping rates low has caused the differential with other currencies to increase, dragging down the value of the Yen.
The weakness of the Yen and the rebound in global energy prices have caused a rise in Japanese inflation, which has exceeded the 2% target set by the Bank of Japan. Even so, the Bank of Japan judges that sustainable and stable achievement of the 2% objective is still not in sight, so a sudden change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
