In Asian trading on Wednesday, the euro continued its ascent against the yen, marking a sixth consecutive session of gains and reaching levels not seen in 32 years.
The sustained strength of the euro against the yen is primarily driven by the persistent interest rate gap between Europe and Japan, a trend expected to endure throughout the year. Japan’s recent negative revision of first-quarter GDP figures has added pressure on policymakers and dimmed prospects for further rate hikes in the near term.
Today, the EUR/JPY pair climbed 0.15% to 173.69, its highest level since 1992. Yesterday’s gain of 0.1% marked the fifth consecutive session of profit-taking, following the breach of the psychological threshold of 172 yen per euro.
Meanwhile, the yen has faced significant selling pressure against major currencies amidst uncertainties over potential Japanese government intervention to support its currency.
The current interest rate differential between Europe and Japan stands at 415 basis points in favor of the eurozone, reinforcing the euro’s strength against the yen. While the European Central Bank is unlikely to reduce interest rates further this year, the Bank of Japan’s recent stance suggests no imminent rate hikes in response to economic developments.
At its June 14 meeting, the Bank of Japan maintained its monthly government bond purchase program at 38 trillion yen and indicated plans to outline a gradual reduction in purchases over the coming years at its July meeting. These steps were initially perceived as signals towards monetary policy normalization and potential future rate increases. However, in light of the deeper-than-expected contraction reported for the first quarter, many analysts now anticipate a delay in such measures by the BOJ.
