EUR/JPY shows a V-shape move as BoJ Udea cites current monetary policy appropriate

• EUR/JPY has shown wild gyrations amid commentary from BoJ Governor Nominee Ueda.
• The discussions over widening Yield conversion control were absent in Ueda’speech.
• BoJ Ueda is of the view that rising Japan’s inflation is backed by higher import prices.

The EUR/JPY pair has demonstrated a V-shape move for the moment when Bank of Japan (BoJ) Governor nominee Kazuo Ueda addresses the parliament. The commentary from the successor of BoJ Governor Haruhiko Kuroda has accelerated volatility in the Japanese Yen.

The speech from BoJ Ueda looks more diplomatic as he has termed the current monetary policy as appropriate and necessary for maintaining 2% inflation. He further stated that rising inflation in Japan is an outcome of higher import prices. Domestic demand is still absent but the central bank is deploying efforts to achieve pre-pandemic growth levels. The street has gone bizarre as the discussions over widening Yield conversion control (YCC) were absent in his speech.

In spite of current discussions about YCC widening, the economic outlook for the Japanese Yen looks promising as the BoJ is working on increasing the labor cost, which will confidently support a revival in the overall demand.

Economists at Nordea are maintaining a bullish stance on the Japanese Yen, “We remain fairly optimistic on JPY due to our expectations of a turn-around in BoJ monetary policy later this year.” A note from Nordea further cited “With inflation reaching the highest point in decades and an outlook for higher wage growth ahead, the time should be ripe for a normalization of BoJ’s stimulative monetary policy.”

On the Eurozone front, investors are worried that the economy will take plenty of time in achieving normalization despite easing inflationary pressures. The European Central Bank (ECB) is expected to continue hiking interest rates to keep a cap on the price index.