EUR/JPY holds gains above 183.00 as BoJ expected to hold rates steady

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EUR/JPY extends its gains for the second successive session, trading around 183.10 during the Asian hours on Tuesday. The currency cross appreciates as the Japanese Yen (JPY) struggles amid the BoJ's widely expected to keep interest rates unchanged at 0.75% on Thursday.

EUR/JPY rises as the Japanese Yen weakens, with the BoJ expected to keep rates unchanged at 0.75% on Thursday.
The Japanese Yen may find support on expectations of potential intervention by Japanese authorities.
The Euro received support from eased oil prices, which helped lift investor sentiment.

Japan’s Finance Minister Satsuki Katayama said on Tuesday that financial markets are seeing heightened volatility, adding that authorities stand ready to act if necessary, including in the foreign exchange market.

Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda said underlying inflation is gradually moving toward the bank’s 2% target, adding that policy will be guided appropriately to achieve stable and sustainable inflation.

The risk-sensitive EUR/JPY cross appreciates as the Euro (EUR) receives support from eased oil prices, which helped lift investor sentiment. It’s worth noting that high Crude Oil prices could weigh on the Eurozone economic growth, given the region’s heavy reliance on imported energy.

Oil prices declined as several tankers safely navigated the Strait of Hormuz, while major economies are expected to release petroleum reserves to help offset potential supply disruptions.

Traders expect President Christine Lagarde to signal how the ECB plans to shield the eurozone from conflict-driven inflation and rising energy costs. The central bank is widely expected to keep the Main Refinancing Rate unchanged at 2.15% on Thursday, while money markets fully price in a rate hike by July.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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