- The EUR/JPY currency pair is gaining ground as the Japanese Yen experiences broad-based weakness, triggered by the Bank of Japan’s decision to hold its key interest rate steady at 0.5% on Thursday.
- Adding to the dovish sentiment, the Bank of Japan also revised downward its median core CPI forecast for fiscal year 2026 to 1.7%, a decrease from the 2.0% projection issued in January.
- Financial markets are largely anticipating a 25 basis point reduction in interest rates by the European Central Bank (ECB) at its upcoming monetary policy meeting in June.
The EUR/JPY pair is interrupting a three-day sequence of losses, staging a recovery to approximately 162.50 during Thursday’s Asian trading session. This resurgence in the currency cross is attributable to the widespread weakening of the Japanese Yen (JPY) in the foreign exchange market, a direct consequence of the Bank of Japan’s (BoJ) widely anticipated decision to maintain its benchmark policy rate.
In line with market expectations, the BoJ opted to keep its key interest rate unchanged at 0.5% on Thursday, citing persistent uncertainties surrounding potential US trade policies and their potential impact on the Japanese economy. The central bank, in its official policy statement, reaffirmed its commitment to a gradual normalization of monetary policy, indicating that it intends to raise interest rates incrementally should the economy and inflation evolve in accordance with its established projections. This cautious approach reflects the BoJ’s desire to avoid destabilizing the nascent economic recovery. Furthermore, the statement highlighted the importance of closely monitoring wage growth and its impact on sustainable inflation.
Of particular note, the Bank of Japan adjusted its median core CPI forecast for fiscal year 2026 downward to 1.7%, a revision from the 2.0% figure projected in January. This adjustment suggests a more moderate outlook for inflation in the medium term. However, the BoJ maintained its assessment that inflation is likely to fluctuate around its 2% target during the latter portion of the forecast horizon, extending through 2027. This suggests that while near-term inflationary pressures may be somewhat subdued, the central bank remains confident in its ability to achieve its long-term inflation objective. Market participants will be closely scrutinizing upcoming economic data releases for further clues regarding the BoJ’s future policy intentions.
