Euro holds losses as BoJ pause weighs on EUR/JPY

The Euro (EUR) lost some of its recent gains on Friday, trading around 176.10 against the Japanese Yen (JPY) during Asian trading hours. This decline followed the Bank of Japan's (BoJ) decision to maintain its short-term interest rate at 1.25%, aligning with market expectations. The BoJ's Monetary Policy Statement indicated that its median projection for core Consumer Price Index (CPI) in fiscal 2026 would remain at 2.5%, unchanged from the previous month.

However, the underlying inflation level was found to be consistent with the central bank's price target. Looking ahead, the BoJ projected a potential upward adjustment of core-core CPI median projection for fiscal 2027 from 2.6% to 2.7%. Despite reassurances about adjusting monetary policy as needed, the BoJ emphasized the importance of preventing unchecked inflation from harming the broader economy.

The EUR/JPY cross might regain strength as the Euro receives support from a hawkish European Central Bank (ECB) outlook. Analysts at Scotiabank noted that market pricing still suggests further interest rate hikes by the ECB, including a potential 25 basis points increase in December, despite some forecasters believing the cycle may be nearing its end.

The BoJ's interest rate decision is made each year at its eight scheduled meetings. A hawkish stance, leading to rate hikes, is typically bullish for the Japanese Yen (JPY), while a dovish view, resulting in unchanged or cut rates, is usually bearish for JPY.