EUR/JPY appreciates above 183.60 on generalised Yen weakness

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The Euro appreciates sharply on Friday, reaching session highs above 183.60 after bouncing from three-week lows at 182.63, to retrace most of the weekly losses.

EUR/JPY rallies beyond 183.60, retracing weekly losses.
Tensions with China and doubts about the BoJ's next rate hike are hammering the Yen on Friday.
Mixed economic data from Germany is keeping the Euro from rallying further.

The Euro appreciates sharply on Friday, reaching session highs above 183.60 after bouncing from three-week lows at 182.63, to retrace most of the weekly losses. The Yen drops across the board amid concerns about tensions with China and market uncertainty about the timing of the Bank of Japan’s (BoJ) next rate hike.

On the macroeconomic front, data from Japan released earlier on Friday showed that household spending bounced back, with a 2.9% yearly increase in November, following a 3% contraction in October and beating market expectations of a 0.9% decline.

Beyond that, November’s preliminary Leading Economic Index improved to 110.5, its highest level since July last year, pointing to steady economic growth. The impact of these figures on the Yen, however, has been marginal.

In the Eurozone, mixed German data have failed to provide any significant fundamental support to the Euro. German Industrial Production rose 0.8%, against market expectations of a 0.4% decline. The Trade Balance surplus, on the other hand, narrowed to €13.1 billion, against expectations of a €16.5 surplus, weighed by a 2.5% decline in exports, which has raised concerns about the outlook of a trade-oriented economy.

Later on Friday, Eurozone Retail Sales are expected to show that consumption ticked up 0.1% in November after a flat reading in October, although the highlight of the day is the US NFP report and the Supreme Court’s ruling on Trump’s tariffs.

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.

trade-oriented