EUR/JPY loses traction to near 176.50 despite ECB’s cautious stance

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The EUR/JPY cross loses ground around 176.60 during the Asian session on Friday. The Japanese Yen (JPY) strengthens against the US Dollar on minutes of the Bank of Japan’s (BoJ) September policy meeting and verbal intervention from Japanese officials.

EUR/JPY softens to near 176.60 in Friday’s Asian session.
Minutes of the BoJ's September policy meeting kept hopes alive for an imminent rate hike.
ECB’s Vujcic said the current policy is in a good place.

Minutes from the Bank of Japan's (BoJ) September meeting revealed on Wednesday that an increasing number of policymakers at the central bank believed that conditions were falling into place for interest rates to rise, with two members calling for an immediate hike. The hawkish BoJ minutes may give some support to the JPY in the near future.

Some verbal intervention from Japanese officials could also lift the JPY against the EUR. Finance Minister Japan’s Finance Minister Satsuki Katayama had escalated the verbal intervention last week, saying that officials were "monitoring foreign exchange movements with a high sense of urgency."

On the other hand, the cautious stance from the European Central Bank might help limit the EUR’s losses. ECB President Christine Lagarde highlighted that the central bank is “in a good place” and further stated it will do whatever is needed to stay in such a favorable position.

ECB Governing Council member Boris Vujcic stated that current policy is “in a good place” and that “we feel that we have done our job” after lowering inflation to the ECB’s target. Traders see a less than 50% odds of further reductions by July 2026. A Morningstar analysis notes that swap markets are pricing in just a 25 basis point (bps) cut by September 2026.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.