The EUR/JPY cross is trading near 162.25 in the early European session on Thursday, marking the fourth consecutive day of losses. The Japanese Yen has gained strength against the Euro following a surprise hawkish policy announcement by the Bank of Japan, which raised its short-term policy rate to 0.25%. This move, along with tapering of Japanese government bonds, has boosted the JPY and pressured the EUR/JPY pair lower.
The bearish trend in EUR/JPY is supported by the fact that the cross is below the key 100-period Exponential Moving Average (EMA) on the 4-hour chart. The Relative Strength Index (RSI) remains in bearish territory below the midline, indicating a potential for further downside movement in the near term. However, an oversold RSI condition suggests the possibility of some consolidation before a potential depreciation of EUR/JPY.
In terms of key levels, the psychological support level for EUR/JPY is at 162.00, with a potential drop to the 161.00-161.10 region if losses continue. Further downside targets include 160.22, a low from March 11. On the upside, immediate resistance is seen at 164.85, with additional hurdles at 167.88 and 168.55. A break above these levels could lead to further gains for the EUR/JPY pair.
The Japanese Yen is influenced by various factors such as the performance of the Japanese economy, Bank of Japan’s policy decisions, bond yield differentials, and risk sentiment among traders. The BoJ plays a crucial role in currency control and has intervened in the currency markets at times to adjust the value of the Yen, though it does so cautiously due to political concerns. The Bank’s ultra-loose monetary policy has caused the Yen to depreciate against other major currencies.
Policy divergence between the Bank of Japan and other central banks, particularly the US Federal Reserve, has widened the yield differential between US and Japanese bonds, favoring the US Dollar against the Japanese Yen. The Yen is often considered a safe-haven investment, meaning investors tend to flock to it during times of market stress due to its perceived stability. As a result, the Yen may strengthen against riskier currencies during turbulent market conditions.
