quick look
- The Bank of Japan raising interest rates increases the odds of further tightening
- The European Central Bank hints at possible interest rate cuts
- Major economic indicators lead the movements of the EUR/JPY pair
During the early European trading hours on Thursday, the EUR/JPY pair is trading slightly calmer, just above the 165.00 level. This mild decline is rooted in the expectation of another interest rate hike by the Bank of Japan (BoJ) coupled with concerns about potential foreign exchange interventions by Japanese authorities. Market participants are keenly focused on the preliminary HCOB index for Germany and the Eurozone. Seeking new catalysts, market participants are closely monitoring March Purchasing Managers' Index (PMI) data. Currently, the EUR/JPY stands at 165.15, seeing a slight decline of 0.03% during the day.
The first interest rate hike by the Bank of Japan in 17 years weighs on the outlook for the EUR/JPY pair
On Tuesday, the Bank of Japan embarked on a major policy shift, raising interest rates for the first time in 17 years. This move prompted investors to speculate on the possibility and extent of raising interest rates in the future during the year.
Reinforcing these expectations, reports from the Nikkei newspaper suggest that the central bank may consider raising interest rates further before the end of the year, thus supporting the Japanese yen (JPY) against the euro (EUR).
At the same time, verbal interventions from Japanese authorities are likely to strengthen the Japanese yen and limit the upside of EUR/JPY in the short term. Early Thursday, Japanese Finance Minister Shunichi Suzuki emphasized the importance of currency stability.
Anticipating economic indicators and central bank policies
The European scene presents a contradictory scenario. Specifically, European Central Bank President Christine Lagarde points to possible interest rate cuts at next June's meeting. This position is based on the expectation that upcoming data will provide deeper insights. These ideas relate to inflation trends and labor market dynamics. As a result, market forecasts currently expect up to three interest rate cuts by the European Central Bank by the end of the year. Additionally, there is a potential fourth cut on the horizon.
The imminent release of the HCOB Purchasing Managers' Index (PMI) from Germany and the Eurozone, followed by Germany's monthly Buba report, is a critical turning point for the EUR/JPY pair. Moreover, the release of Japan's national Consumer Price Index (CPI) for February is eagerly awaited. Analysts expect core CPI inflation, excluding fresh food, to increase by 2.8% in February, up from 2.0% in January. These events are poised to provide valuable insights and trading opportunities for those navigating the EUR/JPY landscape.
As the financial world prepares for these pivotal developments, the interplay between central bank policies and key economic indicators will undoubtedly shape the course of the EUR/JPY. Investors and traders alike remain vigilant, ready to adjust their strategies in response to the evolving economic and monetary environment.
