The EUR/JPY currency pair climbed to a three-month peak of 166.07 on Monday, driven by a weakened Japanese Yen. The Yen has faced downward pressure amid increasing concerns surrounding the future trajectory of the Bank of Japan’s (BoJ) interest rate strategies, particularly following the recent loss of parliamentary majority by Japan’s ruling coalition, the Liberal Democratic Party (LDP).
On Tuesday, EUR/JPY saw a slight retreat to approximately 165.50 during the Asian trading session. The uncertainty regarding the BoJ’s upcoming rate decisions has left investors cautious. Economists are looking forward to the BoJ’s interest rate announcement scheduled for Thursday, with a significant majority — around 86% — of those surveyed anticipating that the central bank will hold its rates steady at the October meeting.
Additionally, Japan’s Finance Minister expressed vigilance regarding fluctuations in foreign exchange rates, acknowledging influences from speculative trading. While he emphasized the necessity for currency stability that genuinely reflects economic fundamentals, he stopped short of commenting on specific exchange rate levels.
In Europe, tensions among policymakers at the European Central Bank (ECB) have surfaced regarding future monetary policy. Recently, Pierre Wunsch, a notable figure at the ECB, indicated there is no pressing need for the bank to hasten its approach to interest rate reductions, suggesting a potential toleration for a modest rate environment. On the other hand, Mario Centeno from the Bank of Portugal has raised the possibility of a more significant 50 basis point rate cut by December as a viable approach. In parallel, Fabio Panetta from the Bank of Italy expressed concerns regarding the ECB’s capacity to stop cutting rates once it reaches a neutral stance, questioning whether this would adequately support economic growth.
