EUR/JPY falls to near 184.00 as BoJ Ueda’s comments lift Japanese Yen

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EUR/JPY depreciates after registering small gains in the previous trading day, hovering around 184.00 during the Asian hours on Monday. The currency cross weakens as the Japanese Yen (JPY) firms following remarks from the Bank of Japan (BoJ) Governor Kazuo Ueda.

EUR/JPY weakens as the Japanese Yen strengthens on BoJ Ueda’s FX intervention warning.
BoJ March “Summary of Opinions” showed policymakers remain confident about further near-term tightening.
ECB’s Villeroy said policymakers stand ready if energy-driven inflation broadens.

Governor Ueda stated that foreign exchange (FX) fluctuations have a “huge impact on Japan’s economy and prices,” adding that the Bank of Japan “will closely monitor FX moves.” His comments are viewed as a signal that authorities may step in to counter excessive one-sided moves in the Japanese Yen (JPY).

The “Summary of Opinions” from the March BoJ policy meeting, released on Monday, indicated that several policymakers remain confident about further monetary tightening in the near term. One member said it would be appropriate to continue raising interest rates if economic and price projections are realized, while another emphasized that the timing of future hikes will depend on developments in the Middle East, alongside trends in wages, inflation, and financial conditions.

Meanwhile, European Central Bank (ECB) Governing Council (GC) member and Bank of France Governor, François Villeroy de Galhau, said on Monday that policymakers stand ready to respond if energy-driven inflation broadens. Villeroy noted that the Iran war-related energy shock is likely to be inflationary in the near term, although the European Central Bank cannot prevent the initial surge.

Traders are now awaiting Germany’s preliminary March inflation data, including the Harmonized Index of Consumer Prices (HICP) and Consumer Price Index (CPI), due later in the day. These figures will be closely watched, as they are expected to shape market expectations for the European Central Bank’s monetary policy outlook.

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.