EUR/JPY is on the rise, trading around 165.75 in Wednesday’s Asian session, marking a 0.33% gain. The Bank of Japan (BoJ) surprised the markets by increasing interest rates by 15 bps and reducing bond purchases. Additionally, German GDP numbers and inflation data are posing challenges for the European Central Bank (ECB) regarding interest rate cuts.
During the BoJ’s July meeting, the central bank raised its short-term rate target to 0.15%-0.25% from 0%-0.1% and announced a tapering of JGB buying to 3 trillion per month starting in Q1 2026. Despite the rate hike, the Japanese Yen (JPY) weakened.
German inflation exceeded expectations, with the HICP rising to 2.6% YoY in July, indicating ongoing stagflation in the country. Meanwhile, Germany’s GDP contracted by 0.1% QoQ in Q2, falling short of the projected 0.1% growth. In contrast, the Eurozone saw a 0.3% expansion in Q2, surpassing market forecasts.
Traders are now awaiting the release of preliminary Eurozone CPI data and Germany’s Retail Sales later today for further market cues.
Analysis:
The recent developments in the currency markets, particularly with EUR/JPY, signal a shift in central bank policies and economic conditions. The BoJ’s rate hike and the ECB’s challenges with interest rate decisions could impact currency valuations and market sentiment. Investors should closely monitor upcoming economic data releases for potential trading opportunities and risk management strategies.