The EUR/JPY cross is trading in positive territory near 173.80, showing a 0.20% increase on Wednesday’s European session. The Japanese Yen weakened after data revealed that Japanese business activity turned contractionary in June. The final reading of Japan’s Services PMI fell to 49.4 in June, exerting selling pressure on the JPY and acting as a headwind for the pair. On the other hand, the Eurozone’s inflation reports do not suggest the ECB will cut interest rates at its next meeting on 18 July. ECB president Christine Lagarde mentioned that further interest rate cuts are not immediate and the divergence in monetary policies between the Eurozone and Japan continues to support the Euro.
The Japanese Yen (JPY) is heavily influenced by various factors, including the performance of the Japanese economy, Bank of Japan’s policy decisions, the differential between Japanese and US bond yields, and risk sentiment among traders. The BoJ has the mandate of currency control and occasionally intervenes in currency markets to lower the value of the Yen. The current ultra-loose monetary policy of the BoJ has caused the Yen to depreciate against its main currency peers, especially due to the policy divergence with other central banks aiming to combat high levels of inflation by increasing interest rates.
The policy divergence between the Bank of Japan and other central banks, notably the US Federal Reserve, has led to a widening differential between the 10-year US and Japanese bonds, favoring the US Dollar against the Japanese Yen. The Yen is considered a safe-haven currency, meaning investors tend to flock to it during times of market stress due to its perceived reliability and stability. This safe-haven status typically strengthens the Yen’s value against riskier currencies during turbulent market conditions.
The Eurozone’s inflation data for June showed a slight easing to 2.5% YoY, but it is not expected to prompt the ECB to cut interest rates at its upcoming meeting. ECB president Christine Lagarde emphasized that further rate cuts are not urgent based on recent economic developments. The divergence in monetary policy between the Eurozone and Japan continues to support the Euro in the short term. The possibility of the Bank of Japan intervening in the foreign exchange could temporarily underpin the JPY. The EUR/JPY cross has been trading positively for the sixth consecutive day, highlighting the ongoing momentum around 173.80 during Wednesday’s early European session.
Overall, the Japanese Yen is a key currency in the global market, influenced by various factors including the performance of the Japanese economy, the Bank of Japan’s policy decisions, and risk sentiment among traders. The policy divergence between the BoJ and other central banks, particularly the US Federal Reserve, has led to a widening differential between US and Japanese bond yields, supporting the US Dollar against the Japanese Yen. The Yen’s safe-haven status makes it a popular choice for investors during turbulent times, strengthening its value against riskier currencies. Meanwhile, the Euro is supported by the monetary policy divergence between the Eurozone and Japan, with recent inflation data not implying immediate rate cuts by the ECB.
