EUR/JPY holds positive ground above 186.00 as BoJ keeps benchmark rate unchanged

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The EUR/JPY cross gains ground near 186.25 during the Asian trading hours on Friday. The Japanese Yen (JPY) softens against the Euro (EUR) after the Bank of Japan's (BoJ) interest rate decision. The attention will shift to the BoJ press conference later on Friday.

EUR/JPY strengthens to around 186.25 in Friday’s Asian session.
BoJ keeps rates steady on Friday, as expected.
The preliminary readings PMI from the Eurozone, Germany and France are due later on Friday.

As widely expected, the Japanese central bank held its benchmark rate steady at 0.75% following the conclusion of the two-day monetary policy review meeting on Friday. That leaves borrowing costs at the highest level in three decades.

The latest decision came days after Japan’s Prime Minister Sanae Takaichi roiled financial markets with her pledge to suspend a sales tax on food purchases as part of her campaign platform ahead of a February 8 election.

On the Euro’s front, the European Central Bank (ECB) unveiled its latest meeting monetary policy minutes, indicating that the central bank is in no hurry to adjust rates further, as inflation hovers near the 2% target and market expectations point to stable policy throughout 2026. Markets currently price in a high chance of rates remaining unchanged at the next ECB policy meeting on February 5.

Traders will keep an eye on the preliminary readings of Purchasing Managers’ Index (PMI) from the Eurozone, Germany and France later on Friday. If the reports show weaker-than-expected outcomes, this could drag the EUR lower against the JPY in the near term.

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.