- EUR/JPY draws some selling pressure after the Bank of Japan announced its policy decision on Friday.
- As expected, the Japanese central bank kept interest rates unchanged.
- Market participants still anticipate a rate hike by the BoJ in 2024, providing some support to the JPY.
The EUR/JPY pair dipped lower after the Bank of Japan (BoJ) announced its policy decision on Friday, retreating from the two-week high near the 160.00 psychological level reached the previous day. Spot prices have dropped towards the mid-158.00s, but remain within the broader range seen in the last trading session.
As widely expected, the BoJ left its short-term interest rate target unchanged in the 0.15%-0.25% range after a two-day monetary policy review. In its policy statement, the central bank noted that Japan’s economy is expected to grow above potential, with inflation likely to align with the price target. Despite this, the Japanese Yen (JPY) saw little boost, though hawkish expectations for the BoJ continue to pressure the EUR/JPY pair.
Recent comments from BoJ officials have signaled that another rate hike could occur by the end of the year. This outlook was reinforced by Japan’s latest consumer inflation data, released earlier on Friday, which showed the headline CPI rising to 3% year-over-year in August, marking a 10-month high, up from 2.8% the previous month. Core CPI, excluding fresh food prices, also rose to 2.8%, supported by increased consumption driven by higher wages.
Meanwhile, the European Central Bank (ECB) signaled a potential decline in borrowing costs in the coming months after cutting interest rates for the second time in the current cycle. However, reports that ECB policymakers are unlikely to lower rates in October—unless there is a significant downturn in growth—along with a weaker US Dollar (USD), are providing some support to the Euro. This should help limit losses in the EUR/JPY pair, which is on track to post weekly gains for the first time in three weeks.
