EUR/JPY hovers near 159.50, upside seems possible amid uncertainty regarding BoJ rate hike

• EUR/JPY may gain ground due to uncertain expectations surrounding the BoJ rate hike in December.
• BoJ board member Toyoaki Nakamura emphasized the need for caution in raising rates.
• Markets are fully pricing in a 25 basis point cut to the ECB’s Deposit Facility Rate, bringing it to 3% on Thursday.

EUR/JPY maintains its position around 159.50 during Tuesday’s Asian session. This upward movement in the EUR/JPY cross is likely due to a weaker Japanese Yen (JPY), driven by uncertain expectations about a potential Bank of Japan (BoJ) rate hike in December.

BoJ Governor Kazuo Ueda recently signaled that the timing for the next rate hike is approaching. Combined with data showing strong underlying inflation in Japan, this has increased speculation of a rate hike at the BoJ’s policy meeting on December 18-19.

However, some media reports suggest the BoJ may opt to skip a rate hike this month. Additionally, dovish BoJ board member Toyoaki Nakamura emphasized the need for caution in raising rates, adding further uncertainty and weighing on the Japanese Yen.

In the Eurozone, markets are nearly fully pricing in a 25 basis point (bps) cut to the European Central Bank’s (ECB) Deposit Facility Rate, bringing it to 3% on Thursday. Several ECB officials have expressed concerns about the risk of inflation falling short of the bank’s target, driven by a weak economic outlook. The ECB has already reduced the deposit rate by 75 bps this year, and Thursday’s anticipated cut would mark the third consecutive reduction.

Market participants expect the Eurozone economy to underperform due to political uncertainty in Germany and France, the largest economies in the bloc. Additionally, concerns are growing about the potential impact on the export sector, particularly with the uncertainty surrounding US President Donald Trump’s administration and its policies once he takes office.