EUR/JPY climbs toward 183.50 despite Japanese intervention risks

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EUR/JPY has recovered its recent losses from the previous session, trading around 183.40 during the Asian hours on Thursday.

EUR/JPY may fall as the Japanese Yen gains amid intervention speculation by Japanese authorities.
RaboResearch flags Yen volatility, citing lower 10-year yields and rising intervention risks amid inflation and trade deficits.
ECB’s Martin Kocher warned that further Euro strength could prompt the central bank to resume rate cuts.

EUR/JPY has recovered its recent losses from the previous session, trading around 183.40 during the Asian hours on Thursday. The upside of the currency cross could be restrained as the Japanese Yen (JPY) finds support from speculation that Japanese authorities may intervene to curb further currency weakness, alongside the Bank of Japan’s (BoJ) hawkish policy stance.

Rabobank’s RaboResearch reviews the Japanese Yen’s recent moves, pointing to a pullback in 10-year yields and the growing risk of official intervention as inflation and trade deficits widen. The note underscores the fragile state of Japan’s economy and flags potential spillovers to US Treasuries, arguing that Japan may ultimately require external support to manage its mounting financial pressures.

Bank of Japan (BoJ) board members outlined their views on the policy outlook in the December Meeting Minutes released on Wednesday. Several members noted that real interest rates would remain deeply negative even if the BoJ were to raise the policy rate to 0.75%. Members broadly agreed that the BoJ is likely to continue tightening if its economic and price forecasts are realized. Most also stressed that the BoJ should avoid a preset path for rate hikes and instead assess economic conditions, inflation, and financial markets at each meeting before making decisions.

However, the JPY may come under pressure as the Greenback could strengthen after US Treasury Secretary Scott Bessent dismissed speculation that the US would intervene in currency markets to sell dollars against the Yen.

European Central Bank (ECB) policymaker Martin Kocher cautioned that additional Euro (EUR) appreciation could lead the central bank to restart interest-rate cuts. In response, markets slightly raised expectations for a summer move, with the implied probability of a July cut climbing to around 25% from about 15%. The ECB meets next week to set policy and is widely expected to leave rates unchanged.

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.