Euro flattens against Japanese Yen, ECB-BoJ to raise rates in September

The Euro against the Japanese Yen remained stable at approximately 183.85 during the European trading session on Friday. This consolidation came as investors awaited further signals about potential joint intervention between the United States and Japan to support the Japanese currency. In July, the US and Japan had collaborated to counteract "excessive volatility and disorderly movements in the Japanese yen over recent months," as reported by Japan's Ministry of Finance.

Both the European Central Bank (ECB) and Bank of Japan (BoJ) are anticipated to hike interest rates during the September policy meeting. ING analysts suggest that markets are increasingly positioning for tighter policies from the BoJ, with a "close to a 75% chance that the BoJ raises rates by 25 basis points (bp) in September." According to Reuters, three sources familiar with the matter confirm the BoJ's intention to raise rates immediately in September and likely increase them more aggressively afterward from the current pace of roughly twice a year.

On the other hand, the ECB is also expected to raise interest rates in September due to ongoing risks of Eurozone inflation remaining upward. HSBC analysts emphasize that the policy outlook is influenced by conflicting forces, stating that "how these inflation and growth cross-currents interact is crucial for policymakers." HSBC expects the European Central Bank (ECB) to make another rate increase in September.

Central banks aim to maintain price stability by controlling inflation, which can either rise or fall based on demand and economic conditions. Central banks use their benchmark policy rate to influence inflation and economic conditions, with the target typically set at 2%. When central banks increase rates, it is referred to as monetary tightening, while cutting rates is known as monetary easing.