Image Source: Unsplash
The EUR/JPY is among the most attractive currency pairs for trading, with 2024 forecasts indicating a continued bullish market sentiment. The cross-currency pair may belong to a minor group in the forex market, but it’s an excellent candidate for both short-term and long-term trading.
Let’s analyze the battle between these two currencies to see where the currency paid stands in 2024 and what we can expect in the coming months.
Why is the EUR/JPY currency pair attractive to traders?
Here are some of the basics when looking at the Euro vs. Japanese Yen.
The latter yen has always been a low-yielding currency, while the former is a high-yielding, high-interest-rate currency. That makes the EUR/JPY pair ideal for trading, primarily for carry trades when optimistic about global economic performance.
However, the Japanese yen is stable even during crises, making it an excellent choice for other trading strategies.
The EUR/JPY currency pair is highly volatile, allowing traders to profit from steep price fluctuations. It’s also more predictable than many others, having a clean trend that helps technical traders move in the right direction when buying or selling.
Another reason traders love the EUR/JPY forex pair is competitive spreads. It’s always available at low spreads, making transactions cost-effective and helping traders boost profits.
The latest EUR/JPY outlook
Image Source: Freepik
The latest EUR/JPY outlook shows a continued bearish momentum, hovering around 161 yen at the time of writing (March 7, 2024). After the three-month high of 163.70, the euro is moving lower against the Japanese yen and could continue its break of 161.67 support. If the 163.70 resistance holds, the investment risk will remain low.
Why is the Japanese yen firing up against the euro? What factors influence the exchange rate of this widely traded forex pair? Let’s find out.
Factors influencing the EUR/JPY exchange rate
Image Source: Freepik
The top factors impacting every currency pair’s exchange rate in the forex market are geopolitical events, economic conditions, and monetary policies. For instance, the pandemic caused high EUR/JPY volatility in 2020 before the recovering global economy brought back stability in the following years.
As for the political climate, global trade disputes impact Japan’s export economy, and the Eurozone faces many challenges like Germany’s economic crisis.
Monetary policies are the most critical factor affecting the EUR/JPY currency pair. The Bank of Japan (BOJ) maintains sub-zero interest rates (-0.1%), which have barely changed in the past two decades. Depreciating its national currency helps Japan turn from inflation to deflation, boosting foreign trade.
Japan’s annual inflation rate keeps dropping, going from 2.8% in November 2023 to 2.6% in December 2023 and coming at 2.2% in January 2024. The BOJ is on the right path to achieving its 2% target inflation rate.
As for the Eurozone inflation rate, the rising prices keep reducing it. It fell from 2.9% in December 2023 to 2.8% in January 2024 before reaching 2.6% in February, gradually returning to the 2% target. The record-high interest rates of 4.5% (the highest in 22 years) may help the European Central Bank (ECB) achieve that target.
The BOJ’s ultra-loose monetary policy and the ECB’s tight counterpart significantly impact the EUR/JPY currency pair, making forex trading lucrative.
Will the ECB cut interest rates in 2024?
The latest news is that the European Central Bank is unlikely to cut interest rates this month (maybe even for a while). It seeks more proof that inflation in the Eurozone is falling and that the labor markets are cooling, and it will keep interest rates high to avoid a rebounding situation.
Economic analysts predict the ECB will reduce interest rates by June 2024, but that’s only speculation. Other central banks like the Bank of England and the US Federal Reserve don’t seem to be heading in that direction, making experts believe that the ECB won’t make the move either.
Will the BOJ scrap negative interest rates?
Image Source: Unsplash
According to the latest news, the Bank of Japan will tighten its monetary policy in March or April, exiting the negative interest rate territory. Economists believe the BOJ policy shift is imminent. If it happens, the Japanese yen will strengthen. That’s why the news has fired it up in the forex market.
The likely BOJ policy change would mark a significant shift as the Bank of Japan hasn’t hiked rates since 2007. The speculations are that the short-term interest rate will rise to 0.25%, making the 2% target inflation rate finally rear its head.
Conclusion
The EUR/JPY currency pair is gaining momentum, with the ECB and BOJ making headlines and impacting the euro and Japanese yen values. Forex traders and investors feel optimistic, continuing a bullish trend and driving the JPY value.
Monitoring the news of global developers and market sentiment is crucial for evaluating the EUR/JPY pair’s performance, making wise investment decisions, and profiting from price swings.