- EUR/JPY fell after the Bank of Japan hinted at further interest rate hikes if the economic outlook meets expectations.
- The Bank of Japan may raise interest rates to 0.5% by the end of 2024, according to a Fitch Ratings report.
- ECB policymaker Joachim Nagel said core inflation was heading in the right direction.
EUR/JPY fell to near 156.20 during Friday's Asian session, receiving support from a hawkish signal from the Bank of Japan (BoJ), which signalled it may raise interest rates further if the economic outlook meets expectations.
According to Fitch Ratings' latest report on the Bank of Japan's policy outlook, the BOJ may raise interest rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026. The BOJ raised interest rates more aggressively than expected in July, bucking the trend of global policy easing. The move underscores the BOJ's growing confidence that reflation is now firmly established.
Read more: Fitch sees BOJ interest rates at 0.75% by 2025
On Thursday, hawkish Bank of Japan policy board member Naoki Tamura said the central bank should raise interest rates to at least 1% as early as the second half of next fiscal year, reinforcing the BOJ's commitment to keeping monetary policy tight. According to Reuters, Tamura noted that Japan's economy is more likely to achieve the BOJ's 2% inflation target sustainably, suggesting conditions are becoming better for further rate hikes.
The European Central Bank (ECB) on Thursday cut its key refinancing operation rate to 3.65% from 4.25%. Moreover, in an interview with German newspaper Deutschlandfunk early Friday morning, ECB policymaker and Bundesbank president Joachim Nagel said “core inflation is also moving in the right direction.” Nagel expects the inflation target to be reached by the end of next year.
Traders are awaiting euro zone industrial production data due to be released later today. The monthly figure is expected to show a 0.3% decline in July, following a 0.1% drop in the previous month, while annual data is expected to show a 2.7% contraction, an improvement from the previous 3.9% decline.
