EUR/JPY Rises to 160.70 as Ishiba’s Comments Weigh on Japanese Yen
- Ishiba’s comments undermine the Japanese Yen.
- ECB’s Lagarde expresses confidence in reaching 2% inflation target.
The EUR/JPY pair continues its upward momentum, reaching around 160.70 in the early European trading session on Tuesday. This surge can be attributed to the impact of Japan’s incoming Prime Minister Shigeru Ishiba’s remarks, which have put pressure on the Japanese Yen. As investors eagerly await the Eurozone Harmonized Index of Consumer Prices (HICP) for September, the market remains on the edge for potential new developments. Additionally, key speeches from ECB policymakers Luis de Guindos and Isabel Schnabel later in the day are anticipated to provide further insights for traders.
Impact of Ishiba’s Dovish Stance on JPY
Shigeru Ishiba’s comments have introduced a bearish sentiment towards the Japanese Yen. He emphasized the need for the Bank of Japan (BoJ) to maintain an accommodative monetary policy to support the fragile economic recovery. This has led to selling pressure on the JPY and contributed to the current rally in the EUR/JPY pair.
Japanese Tankan Large Manufacturing Index
The recently released Tankan Large Manufacturing Index for the third quarter of 2024 indicated that overall business conditions for large manufacturing companies in Japan remained stable. The index stood at 13.0 in Q3, matching expectations and signaling continuity in economic performance for the sector.
ECB’s Stance on Inflation and Policy Moves
On the Euro front, concerns arise following softer German CPI inflation data, raising expectations of a potential 25 basis points rate cut at the upcoming ECB policy meeting in October. ECB President Lagarde’s statements on Monday hinted at the central bank’s growing confidence in achieving the 2% inflation target. This sentiment is likely to influence the ECB’s next policy decision, potentially leading to an interest rate reduction in the near future. Consequently, market participants are adjusting their expectations and positioning for a possible rate cut at the October meeting.
Understanding the European Central Bank (ECB)
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, serves as the reserve bank for the Eurozone, setting interest rates and managing monetary policy for the region. With a primary mandate of maintaining price stability around 2%, the ECB utilizes interest rate adjustments to achieve this goal. The ECB Governing Council, comprising heads of Eurozone national banks and permanent members like ECB President Christine Lagarde, convenes eight times a year to make monetary policy decisions.
In extreme circumstances, the ECB can implement Quantitative Easing (QE) as a policy tool. QE involves the creation of Euros to purchase assets, such as government or corporate bonds, from financial institutions, typically resulting in a weaker Euro. This measure is employed when lowering interest rates alone may not achieve price stability. The ECB has used QE during significant economic crises, including the Great Financial Crisis and the recent covid pandemic.
Quantitative Tightening (QT) is the reverse process of QE, initiated post-QE when economic recovery and rising inflation warrant a change. Unlike QE, which involves bond purchases to inject liquidity, QT ceases additional bond purchases and reinvestment of maturing bond principal. This policy shift is typically favorable for the Euro’s strength.