- The EUR/JPY weakens about 162.70 in the early Asian session on Tuesday.
- Uchida del Boj said that the Central Bank will continue to raise interest rates if the economy and prices improve as projected.
- Wunsch of the ECB said the Central Bank may need to cut the rates below 2%.
The EUR/JPY crossing operates in negative territory around 162.70 during the early European session on Tuesday. The growing expectation that the Bank of Japan (BOJ) will raise interest rates this year support the Japanese Yen (JPY) in front of the euro (EUR). Later on Tuesday, those responsible for the policy of the European Central Bank (ECB) are expected to speak, including Piero Cipollone and Klaas Knot.
The vice governor of the BOJ, Shinichi Uchida, said that the Central Bank will continue to raise interest rates if the economy recovers from a blow expected by the highest US tariffs, while warning about a highly uncertain panorama. In addition, the summary of opinions of the BOJ of the last meeting suggested that those responsible for the policy have not renounced to increase the interest rates further, and some members of the Board saw margin to resume the increases of fees if the developments on the US tariffs are stabilized. This, in turn, provides some support to the JPY and acts as an obstacle to the EUR/JPY.
As for the euro, operators increase their bets that the ECB will cut their interest rates due to growing concerns about growth and inflation in the eurozone. The markets have discounted almost 90% possibility of a cutting of the ECB on June 5, but they have only discounted an additional reduction during the rest of the year, according to Reuters.
The person in charge of the ECB policy, Pierre Wunsch, said during the weekend that interest rates would be slightly below 2% in the face of the downward risks for inflation and growth. Wunsch also declared that the tariffs imposed by President Trump have pushed “the risks of inflation down.”
And in Japanese faqs
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
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.
