During Friday’s Asian session, the EUR/JPY currency pair edged lower to approximately 156.20, continuing to be buoyed by the Bank of Japan‘s (BoJ) hawkish stance. The BoJ has indicated a potential for further interest rate hikes should the economic outlook align with expectations.
According to Fitch Ratings, the BoJ is projected to raise rates to 0.5% by the end of 2024, with further increases to 0.75% in 2025 and 1.0% by the end of 2026. This marks a divergence from the global trend towards policy easing, with the BoJ having raised rates more aggressively than anticipated in July. This move highlights the bank’s growing confidence in a stable reflationary environment.
On Thursday, BoJ policymaker Naoki Tamura reiterated that the central bank should aim for a rate of at least 1% by the latter half of the next fiscal year. Tamura’s comments reinforce the BoJ’s commitment to monetary tightening, suggesting that conditions are increasingly favorable for further rate hikes as Japan’s economy nears the BoJ’s 2% inflation target, according to Reuters.
In contrast, the European Central Bank (ECB) reduced its Main Refinancing Operations Rate to 3.65% from 4.25% on Thursday. ECB policymaker and Bundesbank President Joachim Nagel noted in an early Friday interview with Deutschlandfunk that “core inflation is moving in the right direction,” and he anticipates that the inflation target will be met by the end of next year.
Traders are also awaiting Eurozone Industrial Production data, set to be released later today. The monthly figure is expected to decline by 0.3% for July, following a 0.1% drop the previous month. The annual data is anticipated to show a 2.7% decrease, an improvement from the earlier 3.9% decline.
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