EUR/JPY is currently trading around 173.80 during the early European session, up by 0.20% for the day. The weakening of the Japanese Yen can be attributed to the recent data showing contractionary business activity in Japan during June. The final reading of Japan’s Services PMI fell to 49.4 in June from 49.8 in May, marking a significant downward movement and putting pressure on the JPY. This development acts as a headwind for the EUR/JPY pair as the JPY weakens in response.
The interest rate differential between the Eurozone and Japan is also playing a role in supporting the Euro against the Japanese Yen. Despite the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) inflation easing to 2.5% YoY in June from 2.6% in May, the European Central Bank (ECB) is unlikely to cut interest rates further at its next policy meeting on 18 July. The divergence in monetary policy between the two regions continues to favor the Euro in the near term, contributing to the positive performance of the EUR/JPY cross.
The Bank of Japan (BoJ) plays a crucial role in determining the value of the Japanese Yen. Its policy decisions, intervention in foreign exchange markets, and the performance of the Japanese economy all influence the strength of the JPY. The BoJ’s ultraloose monetary policy, characterized by massive stimulus measures, has led to a depreciation of the Yen against major currency peers. The policy divergence between the BoJ and other central banks, particularly the US Federal Reserve, has widened, favoring the US Dollar over the Japanese Yen. The BoJ’s stance on maintaining ultraloose monetary policy has exacerbated this policy gap, impacting the value of the JPY in currency markets.
The Japanese Yen is often considered a safe-haven investment during times of market uncertainty. Investors tend to flock to the JPY for its perceived reliability and stability, especially in turbulent market conditions. The strength of the Yen against other currencies seen as riskier investments is bolstered during periods of market stress, highlighting its status as a safe-haven asset.
The EUR/JPY pair’s momentum is influenced by a combination of factors, including Japanese business activity, the interest rate differential between the Eurozone and Japan, the Bank of Japan’s policy decisions, and the safe-haven status of the Japanese Yen. These dynamics continue to shape the performance of the currency pair in the foreign exchange market, providing opportunities for traders and investors to capitalize on the fluctuations in the EUR/JPY exchange rate.