EUR/JPY steadies near 183.50 as strong German data meets firm Japanese Yen

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EUR/JPY remains flat after experiencing volatility, hovering around 183.70 during the early European hours on Thursday. The currency cross remains subdued as the Euro (EUR) failed to gain support from the strong German data.

The Euro ignored strong German data as traders awaited the upcoming Eurozone Retail Sales release.
Germany’s Factory Orders rose 5.0% MoM and 6.3% YoY in March, signaling improving manufacturing activity.
The Japanese Yen remains firm amid speculation that Japanese authorities may intervene in the currency market.

Germany’s Factory Orders rose sharply in March, signaling continued improvement in the country’s manufacturing sector. On a monthly basis, orders for goods produced in Germany increased 5.0% in March following a revised 1.4% rise in February. The reading comfortably exceeded market expectations for a 1.0% increase. Factory Orders surged by 6.3% year-over-year (YoY) in March, as against the previous rise of 3.5%.

Meanwhile, the EUR/JPY cross remains under pressure as the Japanese Yen (JPY) stays firm after strengthening on Wednesday amid speculation that Japanese authorities may have intervened in the currency market.

Japan’s top foreign exchange official, Atsushi Mimura, stated on Thursday that authorities stand ready to take action against speculative moves in the FX market. However, Mimura refrained from commenting on possible intervention or specific currency levels.

The Bank of Japan’s (BoJ) March Meeting Minutes, released on Thursday, showed board members discussing the monetary policy outlook. Several policymakers viewed maintaining the policy rate at 0.75% as appropriate. Members also voiced concerns about a potential rebound in inflation fueled by higher oil prices, while one policymaker suggested the central bank should soon adjust its deeply negative real interest rates.

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.