- EUR/JPY attracts buyers for the third day in a row and approaches the weekly high.
- BoJ uncertainty continues to undermine the JPY and offers support to the cross.
- A neutral technical setup warrants caution for bulls amid the German political crisis.
The EUR/JPY cross builds on the previous day’s bounce from near the 163.25-163.20 horizontal support, or weekly low, and gains some follow-through traction on Wednesday. This marks the third day of a positive move and lifts spot prices to the upper end of the weekly range, around the 164.60-164.65 region during the first half of the European session.
Uncertainty over the Bank of Japan’s (BoJ) rate hike plans is seen as undermining the Japanese Yen (JPY) and turns out to be a key factor acting as a tailwind for the EUR/JPY cross. That said, speculation that Japanese authorities will intervene in the currency market to prop up the domestic currency, coupled with a weaker risk tone, should limit losses for the safe-haven JPY. Additionally, a political crisis in Germany, the Eurozone’s largest economy, continues to weigh on the shared currency and should limit the currency pair’s gains.
Furthermore, the neutral oscillators on the daily chart warrant some caution for bulls and suggest that any further move higher is more likely to face strong resistance near the psychological mark of 165.00, or the 200-day Simple Moving Average (SMA). . A sustained move beyond should lift the EUR/JPY cross towards the 165.45 hurdle en route to the 165.90-166.00 resistance zone. This is followed by a multi-year peak, around the 166.65-166.70 area touched in October, which if broken should pave the way for the resumption of a two-month uptrend.
On the other hand, the round figure of 164.00 now seems to protect the immediate decline before the horizontal support of 163.25-163.20. A convincing break below the latter could trigger some technical selling and drag the EUR/JPY cross below the 163.00 mark, towards testing the next relevant support near the 162.50-162.45 region. The downward correction could further extend towards the 50-day SMA, currently situated near the 162.00-161.95 area.
EUR/JPY Daily Chart
The Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.
One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main 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 decades-old levels of inflation.
The Bank of Japan’s ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.
The Japanese Yen is often considered 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. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
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.
