EUR/JPY trades flat near 181.00 ahead of Eurozone Retail Sales release

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The EUR/JPY cross trades on a flat note near 181.10 during the early European session on Thursday. Hawkish expectations of the Bank of Japan (BoJ) rate hike could provide some support to the Japanese Yen (JPY) against the Euro (EUR) in the near term.

EUR/JPY holds steady around 181.10 in Thursday’s early European session.
Hawkish comments from BoJ Governor Ueda could support the Japanese Yen.
The Eurozone Retail Sales for October will take center stage on Thursday.

Traders raise their bets for an imminent rate hike by the BoJ following Governor Kazuo Ueda's remarks earlier this week. Ueda said on Monday that the Japanese central bank will consider the "pros and cons" of raising interest rates at its next policy meeting. He added that the likelihood of the BoJ’s baseline scenario for growth and inflation being realized is gradually increasing. Market swaps currently imply an approximately 80% odds of a December BoJ hike.

Eurozone inflation unexpectedly ticked up in November, suggesting that further rate cuts from the European Central Bank (ECB) are unlikely under current economic conditions. The ECB held its main interest rates unchanged at its meetings in September and October, with the deposit rate remaining at 2.00%. The EUR could receive support from the growing acceptance that the ECB is done cutting interest rates.

The ECB maintains a data-dependent stance and highlights that future decisions will be based on incoming economic and financial data. Traders will take more cues from the Eurozone Retail Sales data on Thursday, which is expected to show a rise of 1.4% in October. Any surprise downside reading could drag the Euro lower against the JPY.

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.