The euro to Japanese yen (EUR/JPY) exchange rate dipped in early European trading on Tuesday, trading around 162.70. The Japanese yen gained support as expectations rose for another interest rate hike from the Bank of Japan (BoJ) later this year.
BoJ Deputy Governor Shinichi Uchida said the central bank could continue raising interest rates if Japan’s economy recovers from the potential shock of higher U.S. tariffs. However, he cautioned that the economic outlook remains highly uncertain.
A summary of views from the BoJ’s latest policy meeting also suggested that some members remain open to more rate hikes. These policymakers indicated they may resume tightening if global trade tensions — particularly with the U.S. — show signs of easing.
These signals from the BoJ helped boost the yen, putting pressure on the euro and limiting the upward movement of EUR/JPY.
Euro Weakens Amid Market Bets on ECB Rate Cuts
Meanwhile, the euro faced headwinds as investors grew more confident that the European Central Bank (ECB) will cut interest rates soon. Weak economic growth and falling inflation expectations in the eurozone added to the case for monetary easing.
According to Reuters, markets now price in a nearly 90% probability that the ECB will deliver a rate cut at its next meeting on June 5. However, traders only expect one more cut for the remainder of 2024.
Over the weekend, ECB policymaker Pierre Wunsch said the central bank could lower rates to just under 2%, reflecting downside risks to both inflation and growth. Wunsch also said that recent U.S. tariffs, introduced under President Donald Trump, have worsened inflation risks in Europe.
ECB Officials Set to Speak Later Tuesday
Investors will be watching closely later on Tuesday as several ECB officials, including Piero Cipollone and Claes Knot, are scheduled to speak. Their comments could offer more clues on the ECB’s policy path and may influence euro trading.
