The EUR/JPY pair extended its decline below the 157.00 level during Thursday’s European trading session. It fell to around 156.55, marking a 0.85% drop for the day. This move was driven by expectations that the Bank of Japan (BoJ) will take a more hawkish stance on monetary policy.
The Japanese Yen (JPY) has been strengthening due to growing speculation about additional rate hikes from the BoJ. Japan’s recent economic data has supported the case for tighter monetary policy. The country’s GDP has exceeded expectations, and nominal wages are increasing at the fastest pace in nearly three decades.
According to a Reuters poll, more than 65% of economists believe the BoJ could raise interest rates to 0.75% in the third quarter. This year’s labor talks are also expected to result in a pay increase of 5.00%, higher than the 4.75% seen in January. Hajime Takata, a BoJ Board Member, stressed the importance of continuing to consider gradual rate hikes.
eur/jpy under pressure amid BoJ speculation
He noted that Japan’s bond yields are aligning with the market’s view of the economy. The increasing market speculation about earlier-than-expected BoJ rate increases has pushed the JPY higher while putting pressure on the EUR/JPY pair.
On the Euro side, concerns about potential tariffs from the United States could negatively impact the shared currency. US President Donald Trump recently mentioned the likelihood of imposing a 25% tariff on foreign cars, as well as increased duties on semiconductor chips and pharmaceuticals. Although Trump did not provide a specific timeline, he suggested that some of these tariffs could be implemented by April 2.
Another factor affecting the Euro is the ongoing monetary policy divergence between the European Central Bank (ECB) and other central banks. Market analysts at BBH noted that expectations include another 75 basis points (bps) worth of ECB rate cuts over the next 12 months, which could bring the policy rate down to 2.00%. The EUR/JPY pair continues to face downward pressure due to the divergent monetary policy expectations and economic uncertainties.
With the BoJ moving towards potential rate hikes and the ECB leaning towards rate cuts, the currency pair remains under pressure. Investors will closely monitor further economic data and policy signals to assess future movements in the EUR/JPY pair.
