- EUR/JPY tumbles to nearly 156.55 in Thursday’s European session, down 0.85% on the day.
- Hawkish BoJ expectations boost the JPY.
- Investors will take more cues from the German January PPI, which is due later on Thursday.
The EUR/JPY cross extends its downside to around 156.55 during the early European session on Thursday. The Japanese Yen (JPY) strengthens amid rising bets for additional Bank of Japan (BoJ) rate hikes. The German Producer Price Index (PPI) for January is due later on Thursday.
Japan’s latest data has reinforced the BoJ’s case for raising interest rates, with GDP surpassing expectations and nominal wages rising at the fastest pace in nearly three decades. According to a Reuters poll, over 65% of economists said that the BoJ could hike to 0.75% in the third quarter and the rate of pay increases in this year’s labor talks are seen as 5.00% vs. 4.75% in the January poll.
BOJ Board Member Hajime Takata said on Wednesday that it’s important to continue considering gradual rate hikes, while also noting that Japan’s bond yields are moving in accordance with the market’s view of the economy. The growing speculation the BoJ will hike rates sooner rather than later lifts the JPY and creates a headwind for EUR/JPY.
On the Euro front, tariff concerns from US President Donald Trump could weigh on the shared currency. Late Tuesday, Trump said that he would likely impose tariffs of around 25% on foreign cars, while semiconductor chips and drugs are set to face higher duties. Trump didn’t provide a clear timeline for when these tariffs will come into effect but said that some of them will be enacted by April 2.
Additionally, the monetary policy divergence between the BoJ and the European Central Bank (ECB) also weighs on the Euro. “Markets imply another 75bps of ECB cuts in the next 12 months, which would see the policy rate bottom at 2.00%,” noted BBH’s FX analysts.
