EUR/JPY depreciates to near 156.00 as BoJ maintains a dovish stance

• EUR/JPY loses ground as BoJ hints at further rate hikes if economic outlook meets expectations.
• The Fitch Ratings report suggests the BoJ may raise rates to 0.5% by the end of 2024.
• ECB policymaker Joachim Nagel noted that core inflation is moving in the right direction.

EUR/JPY eases to near 156.20 during the Asian session on Friday, continuing to receive support from hawkish signals from the Bank of Japan (BoJ). The BoJ has indicated it may raise interest rates further if the economic outlook meets expectations.

Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggests the BoJ could raise rates to 0.5% by the end of 2024, 0.75% in 2025 and 1.0% by the end of 2026. BoJ deviates from the global trend. of policy easing after raising rates more aggressively than anticipated in July. This move underscores growing confidence that reflation is now firmly established.

Read more: Fitch expects BoJ interest rate at 0.75% by 2025

On Thursday, BoJ policy chief Naoki Tamura said the central bank should raise interest rates to at least 1 percent as early as the second half of the next fiscal year. This comment reinforces the BoJ’s commitment to continued monetary tightening. Tamura noted that the likelihood of Japan’s economy sustainably hitting the BoJ’s 2 percent inflation target is improving, indicating that conditions for further rate hikes are becoming more favorable, according to Reuters.

The European Central Bank (ECB) cut its main refinancing operations rate to 4.0% on Thursday, a 25 basis point cut. Additionally, in an interview with Deutschlandfunk on Friday morning, ECB policymakers and Bundesbank President Joachim Nagel noted that “core inflation is also moving in the right direction.” Nagel expects the inflation target to be reached at the end of next year.

Traders await euro zone industrial production data due today. The monthly figure is expected to fall 0.3% in July, after a previous drop of 0.1%. Meanwhile, annual data is expected to show a 2.7% decline, an improvement on the previous 3.9% decline.