EUR/JPY concludes short-lived pullback above 143.00, BOJ policy in focus
- EUR/JPY is eyeing more weakness below 143.00 as the BOJ is expected to adopt a neutral approach.
- Japan’s imported-inputs-dependent companies are facing the consequences of currency risk.
- The ECB will hike its interest rates significantly to bring price stability.
The EUR/JPY has sensed barricades around 143.40 after a less-confident pullback in the early Asian session. The asset witnessed a steep fall on Tuesday after failing to recapture the critical resistance of 144.47. The cross is expected to display an intense sell-off after dropping below the previous week’s low at 142.30. The selling moat is building up in the asset as investors are expecting a shift in the monetary policy approach by the bank of Japan (BOJ).
There is no denying the fact that the Japanese economy is going through the serious pain of the depreciating yen. The impact is getting huge and imported-inputs dependent companies are facing the consequences. Higher currency risk is resulting in costly inputs and a failure in passing the impact to the end consumers is forcing production halts or lower capacity utilization. The cumulative impact will start reflecting as the third quarter result season will kick-start.
As Japanese officials were planning to intervene in the Fx moves to support the nose-diving yen, a neutral approach by the BOJ on the monetary policy seems lucrative. The price pressures are also showing some strength, therefore, restrictions on announcing more stimulus packages will support yen. Also, neutral guidance on interest rate policy by BOJ Governor Haruhiko Kuroda could provide a cushion for yen.
On the Eurozone front, the speech from European Central Bank (ECB) President Christine Lagarde cleared that the central bank is looking to paddle up its interest rates further. The ECB doesn’t want the inflation chaos to settle in the economic behavior of the trading bloc. Going forward, the Consumer Confidence data will also impact the shared currency bulls. The economic data is seen lower at -25.8 vs. the prior release of -24.9.