The EUR/JPY currency pair fell to approximately 161.10 during the early European session on Tuesday, as the Japanese Yen strengthened against the US Dollar (USD). This movement was largely fueled by growing expectations that the Bank of Japan (BoJ) will raise interest rates during its upcoming policy meeting later this week. Meanwhile, attention also shifts to Germany’s ZEW Survey for January, which is set for release later on Tuesday.
Market analysts are increasingly anticipating that the BoJ will hike interest rates at its policy meeting scheduled for January 23-24. Current market pricing suggests a nearly 92% probability of such a move, which would raise short-term borrowing costs to levels not seen since the global financial crisis of 2008.
In related developments, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, remarked on the impact of US macroeconomic policies, noting that the outlook for the US economy is contingent upon President Trump’s policy decisions. Japan’s Finance Minister, Katsunobu Kato, also emphasized the need for close monitoring of US policy effects on both Japan and the global economy, while expressing confidence that the BoJ would continue to implement appropriate monetary policies to achieve its 2% inflation target.
In contrast, the Euro (EUR) faces downward pressure against the Yen, partly due to expectations of a dovish stance from the European Central Bank (ECB). The ECB’s Monetary Policy Meeting Accounts, released last Thursday, highlighted a cautious approach to interest rate cuts, although the bank acknowledged that further cuts were likely in response to weakening price pressures. Market participants are now betting that the ECB will lower interest rates by 25 basis points at each of its next four policy meetings, driven by concerns about the Eurozone’s economic performance and expectations of subdued inflationary pressures.
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