Yen Gains Press EUR/JPY After BoJ Holds Rates Steady

Key Moments

EUR/JPY Retreats as BoJ Outcome Supports Yen

EUR/JPY is trading around 176.10 in Asian dealings on Friday, pausing a two-day advance as the Japanese Yen (JPY) benefits from the latest Bank of Japan (BoJ) policy decision. The cross has come under pressure after the BoJ opted to maintain its short-term interest rate at 1.25%, in line with market expectations, at the conclusion of its two-day monetary policy review.

The BoJ’s Monetary Policy Statement summary indicated that the median projection for core CPI in fiscal 2026 remains at 2.5%, unchanged from July. The central bank noted that underlying inflation is reaching levels aligned with its price objective.

BoJ Inflation Outlook Signals Scope for Further Tightening

Looking further out, the BoJ raised its median estimate for core-core CPI in fiscal 2027 to 2.7%, up from 2.6% in July. The policy board cautioned that underlying inflation could potentially overshoot its targets, underscoring a readiness to adjust monetary settings if necessary.

The central bank reiterated its intention to act as needed to ensure that inflation does not accelerate unchecked in a way that could ultimately damage the broader economy.

ECB Expectations Offer Potential Support for the Euro

Despite the current firmness in the JPY, some support for EUR/JPY may emerge from expectations around the European Central Bank (ECB). The Euro is being underpinned by a relatively hawkish ECB policy outlook as energy prices climb, intensifying inflation risks across the Eurozone. These dynamics are keeping the possibility of a December ECB rate increase firmly on traders’ radar.

Strategist Views on December ECB Meeting

Strategists at Scotiabank point out that market pricing still favors additional monetary tightening, remarking that “markets expect a further 25bps hike in December,” even though “many forecasters (including Scotia) think policymakers will halt.” They note that this gap between market expectations and some forecasts highlights persistent uncertainty about the ECB’s near-term policy path, even as sentiment grows that the current tightening phase is nearing completion.

BoJ Interest Rate Decision – Latest Release Details

The BoJ’s latest interest rate announcement followed one of its eight scheduled meetings held each year. The outcome and expectations around this decision are central for JPY traders.

Generally, if the BoJ adopts a hawkish stance on inflation and raises interest rates, it is considered bullish for the Japanese Yen. Conversely, a more dovish posture – keeping rates unchanged or cutting them – is typically viewed as negative for JPY.