- EUR/JPY attracts some buyers on the dip on Friday and recovers more than 150 pips from a two-week low.
- The rally is exclusively sponsored by the emergence of new sales around the Japanese Yen.
- Fears of intervention and political uncertainty in France could limit any significant gains.
The EUR/JPY pair is seeing a nice bounce from a two-week low touched during the Asian session on Friday and is back above the 173.00 round mark in the last hour. Spot prices, for now, seem to have stopped a sharp pullback slide from the 175.40-175.45 area, or the highest level since 1992 set on Thursday amid the emergence of fresh selling around the Japanese Yen (JPY).
The overnight market reaction to speculation that Japanese authorities may have intervened in the foreign exchange market to lift the domestic currency fades rather quickly in the absence of any concrete evidence of intervention. This, coupled with the strong underlying bullish sentiment around equity markets, undermines the safe-haven JPY and is seen as a key factor helping the EUR/JPY cross attract fresh buyers on the final day of the week.
That said, uncertainty surrounding the formation and composition of France’s new government could hold traders back from placing aggressive bullish bets on the shared currency. On top of this, bets that the Bank of Japan (BoJ) could hike interest rates and that Japanese authorities will eventually step in to support the JPY should limit any significant appreciating move for the EUR/JPY cross, warranting some caution for bearish traders.
In fact, Japanese Chief Cabinet Secretary Yoshimasa Hayashi said on Friday that it is important for currencies to move stably reflecting fundamentals and that he is ready to take all possible measures in the foreign exchange market. Moreover, Japanese Finance Minister Shunichi Suzuki reiterated that rapid movements in the foreign exchange market are undesirable. Therefore, it will be prudent to wait for strong follow-through buying before positioning for the resumption of the recent well-established uptrend.
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 spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to 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 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 Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ 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 stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours 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 into the Japanese currency due to its perceived 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.
