The EUR/JPY cross trades in negative territory around 184.60 during the early European trading hours on Wednesday. The Japanese Yen (JPY) edges higher against the Euro (EUR) amid hawkish signals from the Bank of Japan (BoJ). Japan’s National Consumer Price Index (CPI) inflation report will be the highlight later on Friday.
Growing speculation that the Bank of Japan may raise interest rates in the coming months provides some support to the JPY. Reuters in a report Friday said the Japanese central bank is considering a rate hike as soon as September. Overnight index swaps are pricing in about an 80% odds of a move by that month.
On the other hand, mounting fiscal worries in Japan could exert some selling pressure on the JPY. Prime Minister Sanae Takaichi’s proposal to cut the consumption tax on food to 1% for two years has raised market concerns, as the government has yet to identify an alternative revenue source and the measure is viewed as an ineffective way to fight inflation.
Japan political pressures bolster support for higher rates to steady the Yen
Strategists at DBS highlight a notable shift in Japan’s policy backdrop, observing that Prime Minister Sanae Takaichi has become “more supportive of raising interest rates to stabilize the JPY amid lower approval ratings and rising cost-of-living pressures.” They argue that this evolving political stance is adding to the case for a less accommodative policy mix, as authorities increasingly frame higher rates as a tool to shore up the Yen and address mounting domestic concerns.
Technical Analysis: EUR/JPY keeps a mildly bearish vibe in the near term
In the daily chart, EUR/JPY maintains a mildly bearish near-term bias as it holds below the 100-day simple moving average (SMA). Price remains confined within the Bollinger Bands, sitting above the middle band support but well under the upper band resistance, which hints at capped upside while the Relative Strength Index (14) at 52.71 stays in neutral territory.
On the topside, initial resistance appears at the 100-day SMA near 185.10. The next upside barrier is located at the June 17 high of 186.32, en route to the upper Bollinger Band around 187.65.
On the downside, immediate support is seen at the Bollinger middle band at 184.10, ahead of a deeper cushion near the August 10 low of 182.70. The next contention level is seen at the lower band around 180.50, where a more pronounced corrective phase could find demand.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
