ECB vs. BoJ: Dueling Central Bank Decisions Impact EUR/JPY

EnclaveFX Ltd
Sep 14, 2023

ECB's Dilemma

The ECB faces a dilemma as it contemplates whether to continue its historic cycle of interest rate hikes or pause amid concerns about the Euro Zone's economic outlook. The stubbornly high inflation has put pressure on the central bank to maintain its tightening policy. A recent Reuters report even hinted at the possibility of the ECB revising its 2024 inflation forecast upward, surpassing the 3% mark, which has reignited speculations about an impending rate hike. The ECB's decision will play a crucial role in determining the sentiment surrounding the Euro and provide fresh directional impetus for the EUR/JPY cross.

BoJ's Changing Stance

On the other side of the spectrum, there is growing belief among investors that the Bank of Japan (BoJ) may finally abandon its ultra-easy monetary policy. Speculation is mounting that the BoJ could scrap its yield-curve control (YCC) policy and put an end to negative interest rates as early as this year. These expectations were fueled by comments from BoJ Governor Kazuo Ueda, who mentioned the possibility of raising interest rates if sustainable price and wage increases are observed. This shift in stance is bolstering the Japanese Yen (JPY) and could act as a limiting factor for the EUR/JPY cross's upside potential.

China's Economic Concerns

Furthermore, concerns about deteriorating economic conditions in China are bolstering the Japanese Yen's relative safe-haven status. This factor, in conjunction with central bank decisions, could further restrict the EUR/JPY cross's upward movement.


As we approach these significant central bank events, it's prudent for traders to exercise caution and remain vigilant. The outcomes of the ECB and BoJ decisions will undoubtedly influence the sentiment surrounding the EUR/JPY currency pair. Additionally, the release of Chinese macroeconomic data during the Asian session on Friday is poised to add volatility to global financial markets. In this complex and uncertain environment, traders should carefully assess the fundamental backdrop before making fresh trading decisions involving the EUR/JPY cross.


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