EUR/JPY returns above 161.50 ahead of German GDP data

VaselineAugust 27, 2024

0 2 minutes read

EUR/JPY returns above 161.50 ahead of German GDP data

EUR/JPY is gaining ground around 161.60 in the early European session on Tuesday, up 0.20% on the day.
Investors will focus on Germany’s Q2 GDP report due on Tuesday.
Soviet signals from the BoJ are largely ignored as traders wait for new catalysts.

EUR/JPY is trading on a stronger note near 161.60 during the European session on Tuesday. Uncertainty about the future rate path in Japan is weighing on the Japanese yen (JPY) and creating a tailwind for EUR/JPY.

Solicitation comments from Bank of Japan (BoJ) Governor Kazuo Ueda fail to boost the JPY as traders await clearer guidance on the rate’s future path. Japan’s Tokyo Consumer Price Index (CPI) will be in focus on Friday. The BoJ’s Ueda said last week that the Japanese central bank could raise interest rates further if its economic forecasts are correct.

Market players will also be keeping an eye on geopolitical tensions in the Middle East. Any sign of escalation could spur refuge flows and lift the JPY. Hamas rejects new Israeli terms in Egypt’s ceasefire talks and insists that Israel be bound by the terms of a proposal put forward by US President Joe Biden and the UN Security Council, according to local news agency Aljazeera.

The European Central Bank’s (ECB) chief economist, Philip Lane, said there had been “good progress” so far in tackling price pressures in the eurozone. However, the target of returning inflation to 2% is “not yet certain” and interest rates will have to remain tight for now. Investors will take more cues from German Gross Domestic Product (GDP) for the second quarter due on Tuesday.

Later this week, Eurozone inflation data will be closely watched. Markets expect the ECB to cut interest rates twice this year, with the next move set for September. Expectations of an ECB rate cut could affect the euro (EUR) against the JPY in the short term.

Frequently Asked Questions about the Japanese Yen

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

One of the Bank of Japan’s mandates is currency control, so its moves are key for the yen. The BoJ has intervened directly in currency markets on occasion, generally to depress the yen, although it refrains from doing so because of the political concerns of its main trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a widening policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.

The Japanese yen is often seen as a safe investment. This means that during periods of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. The troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineAugust 27, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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