EUR/JPY rises above 157.00 after conservatives win German election
- EUR/JPY climbs to around 157.10 in Monday’s early European session, adding 0.71% on the day.
- The conservatives won the German election, supporting the Euro.
- Rising BoJ rate hike bets might help limit the JPY’s losses.
The EUR/JPY cross rebounds to near 157.10, snapping the three-day losing streak during the early European session on Monday. The Euro (EUR) gathers strength as Germany's conservatives won its election as expected. Traders brace for further results from the German election for fresh impetus.
Preliminary results showed the conservative Christian Democratic Union (CDU), led by chancellor candidate Friedrich Merz, and its allied Christian Social Union (CSU) won the election. The far-right Alternative for Germany (AfD) party came second, scoring between 19 and 20% of the vote, according to exit polls. The attention now is how soon the conservative Christian Democrats could form a coalition government to offer much-needed reform to a struggling economy.
On the other hand, data released last week showed that Japan's core inflation touched a 19-month high in January, supporting the case of the Bank of Japan (BoJ) rate hike. BoJ Governor Kazuo Ueda said the BOJ could raise its short-term policy rate further "if the inflation outlook continues to improve," adding that underlying inflation was still below its 2% target. The rising speculation that the Japanese central bank might continue raising interest rates might lift the Japanese Yen (JPY) and create a headwind for EUR/JPY.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.