The EUR/JPY pair has experienced a sustained decline for the past two days, reaching a low not seen in over a month. This downward movement can be attributed to a combination of factors such as a softer risk tone in the market, speculation of a rate hike by the Bank of Japan (BoJ), and dovish expectations for the European Central Bank (ECB). These elements have aligned to create a negative sentiment towards the Euro/Japanese Yen pair.
Investors are expressing caution as they await the release of crucial US consumer inflation data, which is expected to influence the Federal Reserve’s rate-cut decisions. This cautious approach has led to a general weakening of equity markets, prompting investors to seek safety in the Japanese Yen.
Factors Influencing the Market
The recent hawkish remarks by a BoJ board member, Junko Nagakawa, regarding the current real interest rates and accommodative monetary policies have further boosted the Japanese Yen. These comments have added downward pressure on the EUR/JPY pair, as investors interpret them as a sign of potential changes in monetary easing policies.
On the other hand, the ECB is anticipated to lower interest rates at its upcoming meeting due to declining inflation in the Eurozone. This expectation has contributed to the negative sentiment surrounding the Euro, making it less attractive compared to the Japanese Yen.
Impact on Business Confidence
Despite a decline in business confidence among major Japanese manufacturers and non-manufacturers, the strength of the Japanese Yen remains unaffected. This suggests that the overall sentiment in the market favors the Japanese Yen over the Euro in the near term.
The prevailing sentiment can be seen in the percentage change of the Japanese Yen against other major currencies, where the Yen has emerged as the strongest performer against the New Zealand Dollar. The heat map illustrating the percentage changes of major currencies against each other further highlights the strength of the Japanese Yen in the current market conditions.
The EUR/JPY pair has continued its downward trend, reaching a one-month low. Various factors such as a cautious market sentiment, hawkish comments by the BoJ, and dovish expectations for the ECB have contributed to the decline. Despite weakening business confidence in Japan, the Japanese Yen remains resilient, indicating a bearish bias towards the EUR/JPY pair in the short term.