- EUR/JPY recovers ground to stabilize around 163.00, as Japan’s Q1 GDP figures disappoint expectations.
- Bank of Japan’s Nakamura expresses concern over potential economic headwinds stemming from US tariff policies.
- European Central Bank’s Kazaks anticipates further monetary easing, projecting a decline in the Deposit Facility Rate to 1.75%.
The EUR/JPY pair is trading steadily near the 163.00 level, having reversed earlier declines during Friday’s North American trading session. This recovery in the cross-currency pair coincides with a slight weakening of the Japanese Yen (JPY), influenced by the recent release of Japan’s Q1 Gross Domestic Product (GDP) figures. Market participants are closely monitoring these developments for indications of future monetary policy decisions.
According to the report from the Japanese Cabinet Office, the nation’s economy experienced a contraction of 0.2% in the first quarter, exceeding the anticipated contraction of 0.1%. On an annualized basis, the economic downturn was even more pronounced, with a contraction of 0.7%, significantly surpassing the forecasted decline of 0.2%. This contrasts sharply with the robust growth of 2.2% recorded in the first quarter of the preceding year, highlighting a considerable slowdown in economic activity. These figures suggest a potential weakening in domestic demand and overall economic momentum.
The weaker-than-expected GDP data is anticipated to temper the Bank of Japan’s (BoJ) inclination towards future interest rate hikes. The central bank has been carefully assessing the economic landscape before making any further adjustments to its monetary policy. Earlier in the session, BoJ board member Toyoaki Nakamura cautioned about escalating downside risks to the Japanese economy, attributing these risks to the potential repercussions of tariffs imposed by the United States under President Donald Trump. Nakamura emphasized the uncertainty these tariffs introduce into the global economic environment, potentially impacting Japan’s export-oriented economy. Furthermore, comments from European Central Bank (ECB) officials regarding potential interest rate cuts are also influencing market sentiment and contributing to the overall dynamics of the EUR/JPY pair. Specifically, Governing Council member Martins Kazaks has suggested the possibility of two additional rate cuts, forecasting the Deposit Facility Rate to eventually reach 1.75%. This divergence in monetary policy outlooks between the BoJ and the ECB adds complexity to the currency pair’s trajectory.
