Euro gains momentum against Japanese Yen as BoJ aligns on rate hikes

The Japanese Yen (JPY) experienced a decline following the Bank of Japan's decision to raise the interest rate by 25 basis points to 1.25%, aligning with market forecasts. Meanwhile, the Euro (EUR) gained strength against the Japanese Yen (JPY), trading around 180.20 during Asian hours, as the currency cross advanced with the BoJ's decision.

The Bank of Japan's monetary policy statement indicated that inflation is gradually approaching its target, and the central bank will continue raising rates alongside economic and price developments. However, board members emphasized the need to monitor the Middle East situation's impact on the economy, prices, and global financial and forex markets.

In contrast, the European Central Bank (ECB) raised its key interest rate by 25 basis points to 2.50%, matching market expectations, and reiterated its commitment to not pre-commit to future policy steps. The ECB President, Christine Lagarde, cautioned that geopolitical risks continue to pressure economic outlook, particularly due to the Middle East conflict and Russia's war on Ukraine, which could keep headline inflation well above the 2% target for an extended period.

Market analysts noted that the latest euro area inflation data offered little surprise, with headline inflation remaining in the low 3% range and core hovering in the mid-2% range. Despite this, strategists highlighted that markets are now pricing a 50% chance of a hike in October with a cumulative 36 basis points of tightening by December, indicating that policymakers may still deliver additional rate hikes even if fresh inflation shocks do not materialize.