EUR/JPY holds above 183.00 as BoJ keeps rates steady

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EUR/JPY recovers its recent losses from the previous session, trading around 183.30 during the Asian hours on Thursday. The currency cross remains stronger as the Japanese Yen (JPY) softens after the Bank of Japan (BoJ) decided to hold the short-term interest rate steady at 0.75%, as expected.

EUR/JPY strengthens as the Yen weakens after the BoJ held rates steady at 0.75%, as expected.
BoJ’s Takata proposed raising rates to 1.0% from 0.75%, but the majority rejected the proposal during the meeting.
The ECB is expected to keep its benchmark “Rate On Deposit Facility” unchanged at 2.0% on Thursday.

The BoJ decided policy by an 8–1 vote. Board member Hajime Takata proposed raising the short-term rate to 1.0% from 0.75%, saying the price stability target was largely achieved, but the proposal was rejected by the majority. Investors are focusing on how BoJ Governor Kazuo Ueda, at his post-meeting briefing, will frame the balance between the need to support a shock-hit economy and avoid being behind the curve on inflation.

Rising energy prices are intensifying global inflation pressures, complicating the European Central Bank’s (ECB) policy outlook. The ECB is set to announce its decision on Thursday and is widely expected to keep its benchmark “Rate On Deposit Facility” unchanged at 2.0% in March.

Commerzbank strategist Hauke Siemßen noted that ECB expectations are likely to drive market moves, with forwards now fully pricing in a first-rate hike by September and only a 50% chance of another by year-end. Markets have shifted away from rate cut expectations, with traders now fully pricing in two rate hikes by the end of 2026 amid persistent inflation concerns, according to Bloomberg.

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.