EUR/JPY holds losses near 181.00 as Japan intervention speculation grows

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EUR/JPY retraces its recent gains registered in the previous session, trading around 181.00 during the European hours on Thursday. The currency cross is under pressure as the Japanese Yen (JPY) strengthens on renewed speculation of official intervention.

EUR/JPY remains under pressure as the Japanese Yen strengthens on renewed speculation of potential official intervention.
The JPY gains support as the BoJ may be preparing for a rate hike next month.
The Euro draws support from the European Central Bank’s cautious policy stance.

With US markets closed for Thanksgiving, traders view the holiday period as a potential window for Japanese authorities to step in to support the JPY, though even the threat of intervention has already helped limit further Yen weakness.

Meanwhile, investors are also reassessing the Bank of Japan (BoJ) outlook after reports suggested the central bank may be preparing for a rate hike next month, amid concerns over stubborn inflation, a depreciated Yen, and reduced political resistance to tightening policy.

The downside in EUR/JPY may remain limited as the Euro (EUR) finds support from the European Central Bank’s (ECB) cautious policy stance. Most economists expect the ECB to keep its deposit rate unchanged through the end of this year and see no adjustments by the end of next year. Traders will closely examine upcoming data releases, including consumer and business confidence surveys, Eurozone inflation expectations, and lending activity figures.

ECB Vice President Luis de Guindos struck a mildly upbeat tone on growth on Wednesday, stating that current interest rates are appropriately positioned. Meanwhile, Croatian central bank governor Boris Vujcic stressed that further rate cuts should only be considered if inflation is clearly moving below target without signs of a rebound. ECB Chief Economist Philip Lane also emphasized that a sustained slowdown in non-energy inflation is needed to ensure overall price growth remains close to the 2% target.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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