EUR/JPY is holding the higher ground above 136.50, staging a sharp 100+ pips rally after the Bank of Japan (BOJ) refrained from making any monetary policy adjustment, which smashed the yen further across the board.
The BOJ decided to keep its loose monetary policy, shrugging off the weakening of the yen and rising inflationary concerns. The BOJ’s dovish stance widened the yield differential between the US and Japan and powered the USD/JPY pair almost towards the 130.00 level.
The Japanese central bank did tweak its forward guidance on the monetary policy bias but maintained its stance to hold the YYC at 0.25%. The disparity between the BOJ and the other major global central bank increased, with the European Central Bank (ECB) also seen going for the first-rate hike as early as this July,
EUR/JPY, therefore, benefits from the central banks’ divergence theme. Further, reports that the EU gas producers are preparing to pay Russia in roubles also aid the euro to pause its downslide vs. the US dollar.
Looking ahead, BOJ Governor Haruhiko Kuroda’s press conference will be eagerly awaited for his views on the yen decline and the reason to stand pat on the policy. Germany’s preliminary inflation reading will be also watched out for fresh trading impetus on the cross.
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