Quick look
- Bank of Japan rate hike raises prospects for further tightening
- European Central Bank hints at possible rate cuts
- Key economic indicators to drive EUR/JPY movements
During the early hours of European trading on Thursday, the EUR/JPY cross is trading with slight weakness, just above the 165.00 level. This subtle drop has its origins in the anticipation of another rate hike by the Bank of Japan (BoJ), along with fear of possible currency interventions by the Japanese authorities. Market participants are closely watching the upcoming preliminary HCOBs from Germany and the Eurozone. In their search for new catalysts, market participants are closely monitoring the March Purchasing Managers' Index (PMI) data. Currently, EUR/JPY stands at 165.15, experiencing a slight decline of 0.03% on the day.
First BoJ rate hike in 17 years shakes EUR/JPY outlook
On Tuesday, the Bank of Japan embarked on a major policy shift, raising interest rates for the first time in 17 years. This move has led investors to speculate on the possibility and extent of future rate hikes during the year.
Reinforcing these expectations, reports from the Nikkei newspaper suggest that the central bank could consider additional increases before the end of the year, thus strengthening the Japanese yen (JPY) against the euro (EUR).
At the same time, verbal interventions from the Japanese authorities are likely to strengthen the JPY and limit the rise of EUR/JPY in the near term. Early Thursday, Japanese Finance Minister Shunichi Suzuki stressed the importance of monetary stability.
Anticipation of economic indicators and central bank policies
The European panorama presents a contrasting scenario. Specifically, the president of the European Central Bank (ECB), Christine Lagarde, is signaling possible rate cuts at the next meeting in June. This stance is based on the expectation that upcoming data will provide deeper insights. These insights refer to inflation trends and labor market dynamics. As a result, market projections currently call for up to three rate cuts by the ECB between now and the end of the year. Additionally, there is a possible fourth cut on the horizon.
The imminent release of the German and Eurozone HCOB Purchasing Managers' Index (PMI), followed by the German Buba Monthly Report, represents a critical moment for the EUR/JPY cross. In addition, the release of the Japanese national consumer price index (CPI) for February is eagerly awaited. Analysts expect core CPI inflation excluding fresh food to rise to 2.8% in February, up from 2.0% in January. These events are set to offer valuable information and trading opportunities for those navigating the EUR/JPY landscape.
As the financial world prepares for these fundamental developments, the interplay between central bank policies and key economic indicators will undoubtedly shape the trajectory of the EUR/JPY cross. Investors and traders alike remain vigilant, willing to adjust their strategies in response to the evolving economic and monetary environment.
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