- EUR/JPY advances to over one-week high in reaction to the US-China trade deal.
- BoJ rate hike bets limit deeper JPY losses and cap spot prices amid a softer EUR.
- Traders seem reluctant and keenly await the US-China statement on the trade deal.
The EUR/JPY cross regains positive traction on Monday and jumps to over a one-week top, around the 164.20 area during the Asian session, though it lacks follow-through. Spot prices retreat nearly 50 pips from the daily swing high and currently trade around the 163.85-163.80 region, still up 0.20% for the day amid a weaker Japanese Yen (JPY).
The White House announced on Sunday that a trade deal with China had been reached following the high-stakes meeting in Switzerland over the weekend. The latest optimism triggers a fresh wave of global risk-on trade at the start of a new week and undermines demand for traditional safe-haven assets, including the JPY. Apart from this, worries about Japan’s growth outlook on the back of US tariffs uncertainty further seem to weigh on the JPY.
Traders, however, seem reluctant to place aggressive directional bets and opt to wait for the US-China joint statement on Geneva trade talks for more details about the agreement. Furthermore, bets that the Bank of Japan (BoJ) will hike interest rates again in 2025 amid fears of broader and more entrenched price increases in Japan limit deeper JPY losses. BoJ’s March meeting minutes revealed that the central bank remains ready to hike rates further if inflation trends hold.
Apart from this, a modest US Dollar (USD) uptick exerts pressure on the shared currency and further contributes to capping the EUR/JPY cross. Meanwhile, bets that the European Central Bank (ECB) will keep cutting rates amid slowing inflation and growing downside risks to growth mark a big divergence in comparison to hawkish BoJ expectations. This might further hold back traders from placing aggressive bullish bets around the EUR/JPY cross and cap gains.
Japanese Yen FAQs
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.
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.
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.
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.
Read the full article here
