EUR/JPY experienced a sharp decline on Wednesday, hitting its weakest point since mid-April at 162.20. This significant drop is attributed to the Bank of Japan’s (BoJ) unexpected decision to raise its policy rate by 15 basis points (bps) to 0.15%-0.25% and announce a tapering of Japanese government bond (JGB) purchases.
Bank of Japan’s Hawkish Stance:
The BoJ’s move towards policy normalization, coupled with Governor Kazuo Ueda’s statement indicating a potential continuation of rate hikes, has bolstered the Japanese Yen (JPY) across the board. This has led to significant weakness in the EUR/JPY pair.
Eurozone Inflation Data:
Meanwhile, Eurostat reported that the core Harmonized Index of Consumer Prices (HICP) in the Eurozone rose by 2.9% year-on-year in July, matching June’s increase and exceeding market expectations. This data may limit the European Central Bank’s ability to ease monetary policy further, potentially contributing to the Euro’s weakness against the Yen.
Market Impact:
The JPY’s strength is also evident in the USD/JPY pair, which is down over 1% on the day, trading below 150.50. This highlights the broader impact of the BoJ’s hawkish policy shift on the foreign exchange market.
