EUR/JPY Reaches Two-Week High on ECB-BoJ Policy DivergenceFor the second consecutive day, EUR/JPY has scaled higher, reaching a two-week high on Tuesday. The ongoing upward move is supported by the policy divergence between the European Central Bank (ECB) and the Bank of Japan (BoJ), favoring bullish sentiment. Traders are now eagerly awaiting the upcoming ECB decision and BoJ meeting before making fresh directional bets.
During the early European session, the EUR/JPY cross continues its positive momentum, extending the steady climb witnessed in the previous day. The spot prices surge to over the 150.70-150.75 region, marking a two-week high.
The upward trajectory of the EUR/JPY cross is driven by the increasing expectations of further policy tightening by the ECB. The shared currency benefits from this sentiment, with ECB President Christine Lagarde suggesting the likelihood of additional interest rate hikes. She stated that there is no clear evidence of a peak in underlying inflation, aligning with recent hawkish remarks from several ECB policymakers. Despite a decrease in the headline Eurozone CPI to 6.1% in May, these factors indicate that the central bank still has room to raise borrowing costs.
In contrast, the BoJ is expected to maintain its dovish stance to support the economy and ensure the sustainability of recent positive signs. BoJ Governor Kazuo Ueda emphasized the need to continue with ultra-loose monetary policy until durable wage growth accompanies price increases. Additionally, BoJ Deputy Governor Masazumi Wakatabe recently expressed the overwhelming case for the continuation of ultra-easy monetary policy measures. These factors contribute to the boost in the EUR/JPY cross.
However, concerns about a global economic slowdown and the possibility of Japanese authorities intervening to support the domestic currency could provide some support to the safe-haven JPY. Traders may exercise caution in placing aggressive bullish bets on the EUR/JPY cross and instead wait for the upcoming central bank events. The ECB decision on Thursday, followed by the BoJ meeting on Friday, pose significant risks. Nevertheless, considering the aforementioned fundamental backdrop, the path of least resistance for spot prices appears to be on the upside.
