The EUR/JPY currency pair remains steady even in the wake of the recent rate increase by the Bank of Japan (BoJ). The BoJ lifted its short-term interest rate target by 25 basis points, bringing it to a range of 0.40% to 0.50%. This marks the highest rate in over a decade, following a series of meetings where rates had been maintained.
During the Asian trading session on Friday, EUR/JPY showed signs of recovery, stabilizing around the 163.00 level. The market had anticipated the BoJ’s decision to adjust rates after a prolonged period of zero or negative rates. This shift highlights the central bank’s response to ongoing inflationary pressures in the Japanese economy, where the National Consumer Price Index (CPI) recorded a year-over-year increase of 3.6% in December, up from 2.9% in November. Core consumer prices also rose from 2.7% to 3.0%, indicating a significant jump that reflects stronger private consumption.
In contrast, the EURO gained ground against other currencies as a result of improved risk appetite in the market. This uptick is partly attributed to US economic feedback, specifically comments from the President advocating for immediate interest rate cuts from the US Federal Reserve. The hopeful assessments of US-China trade negotiations, following a recent dialogue between the two nations’ leaders, have contributed to a more optimistic outlook for the EURO .
Nevertheless, the potential for further EURO appreciation might be limited due to expectations surrounding upcoming European Central Bank (ECB) meetings. Many market participants are looking ahead to possible rate cuts, with forecasts suggesting a 25 basis point reduction at each of the next four ECB policy sessions. This anticipation stems from concerns regarding economic conditions within the Eurozone and an expectation that inflation will remain subdued.
