EUR/JPY remains almost flat on BOJ’s unchanged policy, ECB eyed

• EUR/JPY has not displayed much reaction to status quo maintenance by the BOJ.
• The BOJ will continue to buy JGBs to keep raining helicopter money.
• As per the market consensus, the ECB will hike interest rates by 25 bps.

The EUR/JPY pair has remained muted after the conclusion of the two-day monetary policy committee (MPC) meeting of the Bank of Japan (BOJ). The BOJ has maintained its status quo by keeping interest rates unchanged at -10 basis points (bps).  BOJ Governor Haruhiko Kuroda kept a dovish stance on monetary policy as the central bank is committed to buying Japan’s Government Bonds (JGB) at an annual pace of around 80 trillion yen.

Taking into account, BOJ’s agenda of keeping the inflation rate above 2%, the central bank has no other option than to feature policy easing. In order to keep price pressures above the desired rate, the wage rates are needed to be accelerated. Therefore, the central bank will keep on raining helicopter money into the economy to accelerate the overall demand. It is worth noting that the Japanese economy has yet not reached its pre-pandemic growth levels yet.

Going forward, investors are expecting a European Central Bank (ECB)-BOJ policy divergence. The ECB is set to announce a rate hike for the first time in 11 years. As per the market consensus, the ECB will step up its interest rates by 25 basis points (bps) as ECB President Christine Lagarde will prefer to test the waters first. Investors should open their viewpoint also to 50 bps rate hike as households in Europe are facing the heat of ultra-hot inflation.