EUR/JPY Declines as Yen Strengthens on BoJ Rate Hike Expectations

Warren Takunda

Summary:

The EUR/JPY pair continues its decline as the Japanese Yen strengthens on expectations of additional BoJ rate hikes.

SELL EURJPY

Close Time

CLOSED

157.600

Entry Price

155.000

160.000

183.705 -0.401 -0.22%

53.0

Pips

Profit

155.000

157.070

Exit Price

157.600

Entry Price

160.000

The EUR/JPY pair extends its downward momentum, slipping to around 156.55 during the early European session on Thursday. A confluence of factors is pressuring the Euro against the Japanese Yen (JPY), with the latter benefiting from rising speculation of additional rate hikes by the Bank of Japan (BoJ). Meanwhile, investors are also keeping a close watch on Germany’s upcoming Producer Price Index (PPI) data for January, which could offer fresh insights into inflation trends within the Eurozone’s largest economy.

Recent macroeconomic indicators out of Japan have strengthened the case for the BoJ to further tighten monetary policy. The nation’s latest GDP data exceeded expectations, while nominal wages saw their fastest increase in nearly three decades. These developments have bolstered confidence in Japan’s economic recovery, reinforcing market expectations of a continued exit from the central bank’s long-standing ultra-loose monetary policy.

According to a recent Reuters poll, 65% of economists now believe that the BoJ could raise rates to 0.75% in the third quarter of 2024. The ongoing labor negotiations in Japan are also painting a hawkish picture, with wage growth projected to hit 5.00%, up from 4.75% in the previous survey. Wage gains are a critical factor in sustaining inflation at the BoJ’s target level, providing further justification for rate hikes in the coming months.

Adding to the speculation, BoJ Board Member Hajime Takata emphasized on Wednesday the importance of gradually normalizing interest rates while acknowledging that Japanese bond yields are responding appropriately to the market’s economic outlook. These comments have intensified market expectations of imminent policy tightening, providing significant support for the yen while exerting downward pressure on the EUR/JPY cross.

The Euro is facing multiple challenges, with trade policy concerns from the United States adding another layer of uncertainty. Former US President Donald Trump, who remains a key figure in the upcoming election cycle, reiterated his stance on tariffs, suggesting that foreign automobiles could face a 25% duty. Additionally, semiconductor chips and pharmaceutical products are expected to see increased tariffs, with some measures potentially taking effect as early as April 2.

While the exact timeline and scope of these tariffs remain uncertain, the prospect of increased trade restrictions could weigh heavily on European manufacturers, particularly the German automotive sector. Germany, as the Eurozone’s economic powerhouse, has deep trade linkages with the US, and any punitive measures could dampen the Euro’s strength against its peers.

Another significant factor influencing the EUR/JPY pair is the stark contrast between the policy outlooks of the BoJ and the European Central Bank (ECB). Markets are currently pricing in aggressive rate cuts from the ECB over the next year, with expectations of 75 basis points in reductions, which would bring the policy rate down to 2.00%. This dovish outlook stands in stark contrast to the BoJ’s increasingly hawkish tone, further fueling downside pressure on EUR/JPY.

Technical Analysis

From a technical perspective, EUR/JPY is attempting a corrective bullish move after its recent decline. The pair has reclaimed the 157.30 level and is now targeting 158.20, potentially extending gains toward 158.65 if bullish momentum persists. However, any upside is likely to be temporary, with renewed selling pressure expected to emerge near resistance levels.

If the pair fails to sustain gains above 158.65, a renewed bearish wave could push prices back toward 156.60 and 155.50, reinforcing the overall downside bias. The expected trading range for today is between 157.00 and 158.60, with a bearish outlook prevailing in the medium term.

TRADE RECOMMENDATION

SELL EURJPY

ENTRY PRICE: 157.60

STOP LOSS: 160.00

TAKE PROFIT: 155.00

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.

Recent Searches

Top Searches

Markets

Analysis

User

24/7

Economic Calendar

Education

Data

EUR/JPY Declines as Yen Strengthens on BoJ Rate Hike Expectations

Technical Analysis

Risk Disclosure