EUR/JPY gains further to near 183.00 as BoJ raises interest rates to 0.75%

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The EUR/JPY pair extends its upside to near 183.00 on Friday as the Japanese Yen (JPY) weakens, after the Bank of Japan (BoJ) monetary policy announcement. The pair rises further after the BoJ raised its interest rates by 25 basis points (bps) to 0.75%.

EUR/JPY jumps to near 183.00 as the BoJ hikes interest rates by 25 bps to 0.75%, the highest in three decades.
Investors await BoJ Ueda’s press conference for fresh cues on the monetary policy outlook.
The ECB left interest rates steady on Thursday and signaled uncertainty on the inflation outlook.

The BoJ was expected to do so as BoJ Governor Kazuo Ueda said earlier this month that underlying inflation is sustainably close to the central bank’s target of 2%.

Going forward, investors will pay close attention to comments from BoJ Governor Ueda in his press conference, scheduled for 06:30 GMT. Market participants would look for cues about whether the BoJ will continue raising interest rates next year and, if so, how far they can go.

Meanwhile, the Euro (EUR) outperforms its major peers, following the European Central Bank (ECB) monetary policy announcement. On Thursday, the ECB decided to leave its Deposit Facility Rate steady at 2%, as expected, and refrained from providing any remarks on the interest rate outlook amid uncertainty surrounding the inflation outlook.

There was “no discussion on cut or hike today", and “we simply cannot offer forward guidance given uncertainty", ECB President Christine Lagarde said in the press conference. Lagarde added, “Outlook for inflation continues to be more uncertain than usual.”

For more cues on the Eurozone interest rate outlook, investors will focus on speeches from a slew of ECB policymakers during the European and North American sessions.

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.