- The EUR/JPY advances while the Japanese yen weakens, since the BOJ maintained its key interest rate without changes in 0.5% on Thursday.
- The BOJ also reduced its medium prognosis of the underlying CPI for fiscal year 2026 to 1.7%, from 2.0% in January.
- The markets have largely discounted a 25 basic points rate cut by the European Central Bank (ECB) at its June meeting.
The EUR/JPY stops its three -day loss streak, bouncing around 162.50 during Thursday’s Asian negotiation hours. The recovery at the currency crossing occurs as the Japanese yen (JPY) weakens in general, after the widely expected decision of the Bank of Japan (BOJ) to maintain its policy rate.
As anticipated, the BOJ maintained its key interest rate without changes in 0.5% on Thursday in the midst of persistent uncertainty about US tariffs in its policy statement, the Central Bank reiterated its commitment to gradually increase interest rates if the economy and inflation advance in accordance with the projections.
Notably, the BOJ reviewed its medium prognosis of the underlying CPI for fiscal year 2026 to 1.7%, from 2.0% in January. However, he maintained that inflation will probably be maintained around its 2% target during the second half of the projection period until 2027.
The attention now focuses on the press conference after the meeting, where the comments of the governor of the Boj, Kazuo Ueda, will be closely followed in search of information on the future path of the rates of fees, which could significantly influence the movement of the JPY in the short term.
Adding to the weakness of the JPY, previous comments of the president of the US, Donald Trump, generated a renewed optimism about possible relief in commercial tensions between the US and China. This, in turn, weighed on the demand for traditional assets of safe refuge such as Yen.
Meanwhile, the Euro (EUR) operates with caution after the publication of preliminary preliminary data from the harmonized consumer price index (IAPC) of Germany and France, along with stable readings of Italy and Spain. Inflation data suggests moderate price pressures in the largest economies of the eurozone, reinforcing the expectations of greater relief of politics by the European Central Bank (ECB).
The markets have almost discounted a 25 basic points rate cut at the June ECB policy meeting, with officials projecting new falls in inflation and economic activity in response to recent tariffs imposed by the US to its commercial partners.
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
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.
