EUR/JPY depreciates to near 156.00 as BoJ holds hawkish stance

• EUR/JPY loses ground as the BoJ indicates further rate hikes if the economic outlook meets expectations.
• Fitch Ratings report suggests that the BoJ may raise rates to 0.5% by the end of 2024.
• ECB policymaker Joachim Nagel mentioned that core inflation is moving in the right direction.

EUR/JPY edges lower to near 156.20 during Friday’s Asian session, continuing to receive support from the Bank of Japan’s (BoJ) hawkish signals. The BoJ has indicated that it may raise interest rates further if the economic outlook meets expectations.

Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggests that the BoJ might raise rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026. The BoJ is diverging from the global trend of policy easing, having raised rates more aggressively than anticipated in July. This move underscores its increasing confidence that reflation is now firmly established.

Read more: Fitch expects BoJ interest rate at 0.75% by 2025

On Thursday, hawkish BoJ policymaker Naoki Tamura stated that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. This comment reinforces the BoJ’s commitment to ongoing monetary tightening. Tamura noted that the likelihood of Japan’s economy sustainably reaching the BoJ’s 2% inflation target was improving, indicating that conditions for further rate hikes are becoming more favorable, according to Reuters.

The European Central Bank (ECB) reduced the Main Refinancing Operations Rate to 4.0% with a 25 basis-point cut on Thursday. Additionally, in an interview with Deutschlandfunk early Friday, ECB policymaker and Bundesbank President Joachim Nagel mentioned that “core inflation is also moving in the right direction.” Nagel expects the inflation goal to be achieved at the end of next year.

Traders await the Eurozone’s Industrial Production data scheduled for later today. The monthly figure is anticipated to decrease by 0.3% in July, following a previous 0.1% decline. Meanwhile, the annual data is expected to show a 2.7% decline, an improvement from the previous 3.9% drop.