EUR/JPY gains ground after registering modest losses in the previous trading day, hovering around 187.00 during the European hours on Monday. The currency cross gains ground as the Japanese Yen (JPY) struggles with rising oil prices amid renewed United States (US)-Iran concerns, reflecting Japan’s heavy dependence on Middle East oil imports.
The Japan Meteorological Agency issued an immediate tsunami warning for Hokkaido, Iwate, and Aomori prefectures following a magnitude 7.5 earthquake that struck the Tohoku region at 4:53 p.m. Monday, with waves forecast to reach up to three meters. The quake’s epicenter was located off the Sanriku Coast. Tohoku Electric Power stated it is assessing the impact of the earthquake and tsunami on its Onagawa nuclear power plant.
Iranian state media, the Islamic Republic News Agency (IRNA), reported that Tehran has refused to resume talks with US officials, citing “unrealistic expectations,” among other concerns. Iran has blocked the Strait of Hormuz, reversing a brief reopening after Trump refused to lift port blockades.
Meanwhile, markets remain divided over whether the Bank of Japan (BoJ) will raise rates later this month, as Governor Kazuo Ueda has avoided signaling an April hike. However, the BoJ is still expected to revise up its inflation forecasts at the upcoming meeting, reflecting elevated energy costs.
The renewed blockade of the Strait of Hormuz has dampened optimism over normalized energy supply from key Middle East producers, fueling concerns about stagflation in the Eurozone.
The Euro (EUR) may find support against its peers as traders price in bets that the European Central Bank (ECB) could raise interest rates this year. ECB President Christine Lagarde acknowledged last week that elevated energy costs are pushing the Eurozone away from its baseline growth path, but stopped short of signaling imminent rate hikes.
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.
Source: https://www.fxstreet.com/news/eur-jpy-holds-gains-near-18700-focus-on-japans-tsunami-alert-202604200845
