16 Dec 2024

EUR/JPY has risen to 161.65 during the Asian session on Monday, reflecting an increase of 0.22% for the day. The Bank of Japan is anticipated to maintain its current interest rates during the upcoming Thursday meeting. The appointment of a new Prime Minister by Macron has fostered optimism for political stability, which has positively influenced the euro; however, the dovish stance of the European Central Bank may limit further gains.

The EUR/JPY currency pair is experiencing upward momentum, approaching 161.65 during the early hours of the European trading session on Monday. The Japanese Yen (JPY) is under pressure as speculation mounts regarding the Bank of Japan's (BoJ) decision to maintain interest rates at their current level during the upcoming meeting on Thursday. Additionally, the preliminary Purchasing Managers’ Index (PMI) data for the Eurozone for December is set to be released later today, alongside a speech by European Central Bank (ECB) President Christine Lagarde.

The BoJ's final policy meeting of the year is scheduled for December 18-19. Current market expectations indicate a less than 30% probability of a rate increase in December. Many BoJ officials seem to be in no hurry to tighten monetary policy further, given the minimal risk of inflation exceeding targets, despite Japan's persistently low borrowing costs. This situation is contributing to a decline in the JPY and providing support for the EUR/JPY pair.

On the European side, French President Emmanuel Macron appointed François Bayrou, a centrist ally, as prime minister on Friday, which raises hopes for political stability and lends some support to the euro. However, the potential for significant gains in the EUR may be limited as the ECB signals the possibility of additional rate cuts.

Last week, the ECB reduced interest rates by a quarter point to 3.0% and cautioned that economic growth is likely to be weaker than previously anticipated. Market participants in the swaps market are predicting that the ECB may implement an additional five quarter-point reductions by next September, which would lower the deposit rate to 1.75%.