EUR/JPY advances to fresh high since September 2008 as BoJ concerns drown Yen, focus on ECB

• EUR/JPY takes the bids to refresh multi-day top amid broad-based Yen selling.
• BoJ held monetary policy intact, new Governor Ueda defends currency methods of taming inflation.
• Comparatively more hawkish ECB bias, despite recently softer EU data, also propels cross-currency pair prices.
• Downbeat Japan Jibun Bank Manufacturing PMI adds strength to run-up despite First Republic Bank inflicted woes.

EUR/JPY bulls cheer the broad-based JPY weakness to refresh highest levels in more than 15 years to 150.60 during early Monday. In doing so, the cross-currency pair also ignore the latest retreat in the European Central Bank's (ECB) hawkish bias ahead of the bloc’s central bank’s monetary policy meeting, mainly due to the downbeat data.

Hopes of continued easing on the part of the Bank of Japan (BoJ) join downbeat US Treasury bond yields and the US government’s efforts to tame the banking crisis to favor the EUR/JPY pair’s latest run-up.

After witnessing an exodus of withdrawal and a slump in the First Republic's share price, the Federal Deposit Insurance Corporation (FDIC) called in bids for the troubled US bank in which multiple top-tier private organizations, including JP Morgan, took part. The results are up for release and can give only knee-jerk optimism as an immediate defense of the bank by a private player isn’t a solution to the broad banking problems. On the contrary, the same raises fears of such actions for the larger public banks in the future and hence can keep the risk-off mood intact.

On Friday, BoJ held the current monetary policy unchanged, as expected, while the newly appointed Governor Kazuo Ueda said that it is “appropriate to continue monetary easing to achieve 2% inflation target in tandem with wage growth.” That said, the BoJ dropped its forward guidance for interest rates and launched a review of its policies that will take more than a year.

On the other hand, ECB hawks retreat amid downbeat EU and German statistics released in the last week. On Friday, preliminary readings of Germany’s inflation for April, as per the Harmonized Index of Consumer Prices (HICP) index, eased to 7.6% YoY versus 7.8% expected and prior. Further, the nation’s inflation per the Consumer Price Index (CPI) also softened to 7.2% YoY compared to 7.3% market consensus and 7.4% previous readings.

Further, the first readings of the Eurozone Gross Domestic Product (GDP) for the first quarter (Q1) of 2023 came in mixed for QoQ and YoY. That said, the Eurozone Q1 GDP improved to 0.1% QoQ from 0.0% prior, versus 0.2% expected, whereas the yearly growth eased to 1.3% from 1.4% market forecasts and 1.8% prior. On the same line, Germany’s Q1 GDP improved on a quarterly basis, to 0.0% from -0.4% prior and 0.2% analysts’ estimations, whereas the yearly figures dropped to -0.1% from 0.9% previous readings and 0.3% market forecasts.

Moving on, EUR/JPY pair traders should keep their eyes on the risk catalysts and the BoJ headlines amid holidays in Europe. However, Thursday’s ECB monetary policy meeting will be crucial to watch as hawks step back and weigh on the odds of the 0.50% rate hike, with most market players expecting 0.25% rate increase.

Technical analysis

Unless dropping back below the October 2022 high of 148.40, the EUR/JPY pair appears well-set to challenge the September 2008 peak of near 156.85.