The currency pair EUR/JPY saw a decline after the Bank of Japan (BoJ) revealed its latest policy decision on Friday. In line with expectations, the BoJ opted to keep interest rates unchanged, maintaining the short-term target in the range of 0.15%-0.25% following a two-day monetary policy review. Despite this decision providing little immediate momentum for the Japanese yen (JPY), market players continue to anticipate a potential rate hike from the BoJ in 2024, which is likely supporting the JPY amidst the prevailing uncertainty.
Following the BoJ’s announcement, the EUR/JPY pair retreated from a two-week high, previously hovering around the significant psychological level of 160.00. As the session progressed, spot prices descended into the mid-158.00s, albeit remaining within the broader trading range established the previous day.
The BoJ’s accompanying commentary highlighted expectations for Japan’s economy to grow above potential, coupled with inflation forecasts aligning closely with target levels. While this assessment underlines a positive outlook for growth, it hasn’t led to any substantial movement in the JPY. However, recent comments from various BoJ officials suggest a likelihood of increased interest rates by the year’s end, supported by a released consumer inflation rate that surged to 3% year-on-year in August, marking a 10-month high.
On the other side of the spectrum, the European Central Bank (ECB) indicated a progressive reduction in borrowing costs last week after a second interest rate cut in the current cycle. Reports suggesting that further cuts in October are unlikely unless economic conditions drastically worsen may provide some stability for the EURO . Coupled with a bearish trend for the U.S. dollar, the EURO ’s resilience may help to mitigate losses for the EUR/JPY pair, which appears poised for its first week of gains after three consecutive weeks of decline.
