EUR/JPY declines to near 183.60 as Japan’s intervention threats boost Yen
- EUR/JPY falls sharply to near 183.60 as the Yen outperforms on Japan’s intervention threats.
- The BoJ refrained from guiding the scope and timeframe of further monetary tightening in the policy announcement on Friday.
- The Euro trades lower ahead of the Christmas eve.
The EUR/JPY pair trades 0.27% lower to near 183.60 during the Asian trading session on Wednesday. The pair faces selling pressure as the Japanese Yen (JPY) outperforms across the board, following strong remarks from Japan’s Finance Minister (FM) Satsuki Katayama signaling the possibility of intervention against excessive one-sided moves.
On Tuesday, Japan FM Katayama said, “Japan has a free hand in dealing with excessive moves in the Yen.” She added that the government will take “appropriate action against excessive moves.”
Market experts believe that the time period around Christmas and the New Year could be ideal for Japan’s intervention, assuming that liquidity from retail participants and institutions remains lower in the period.
Japan’s Katayama has underscored the need of a stealth intervention to support the Yen, which faced intense selling pressure, following the monetary policy announcement by the Bank of Japan (BoJ) on Friday. The BoJ raised interest rates by 25 basis points (bps) to 0.75% while keeping the door open for further monetary tightening. The major reason behind Yen’s fall was the absence of clarity from the BoJ on how much and when there will be another interest rate hike.
Meanwhile, the Euro (EUR) underperforms in the Asian session amid lower investor’ participation ahead of the Christmas eve. The FX market is broadly expected to remain lacklustre due to a holiday-elongated week.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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