Key points
- EUR/JPY trades near levels last seen in September 2008
- Bank of Japan’s YCC decision will be closely watched
- ECB expected to hike by 25 bps, focus on signals around September meeting
EUR/JPY traded not far from Friday’s 179-month high at the start of a week featuring a slew of central bank policy meetings, including the European Central Bank on Thursday and the Bank of Japan on Friday.
The Yen retreated over 1% against the Euro on Friday after media reports that the Bank of Japan was leaning towards maintaining its yield curve control policy intact.
“If the BOJ adjusts its YCC program, financial markets will likely take it as the start of a policy tightening cycle regardless of the BOJ’s rationale. Under such a scenBOJ’s we consider USD/JPY and EUR/JPY can lose about 2‑4 yen on the day,” Commonwealth Bank of Australia analysts wrote in an investor note, cited by Reuters.
The BoJ is expected to keep its short-term interest rate without change at -0.10% this month.
Meanwhile, the European Central Bank is largely expected to hike interest rates by 25 basis points, while investor focus will also be on the signals the monetary authority sends regarding its September meeting.
Markets are expecting that the ECB may be nearing the end of its tightening cycle, “with the German technical recession easing and growth holding elsewhere,” according to Bob Savage, head of markets strategy at BNY Mellon.
As of 7:54 GMT on Monday EUR/JPY was retreating 0.66% to trade at 156.725. Last week, the minor Forex pair went up as high as 158.048. The latter has been the pair’s strongest level since September 2nd 2008 (158.452).
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