Key Moments:

• EUR/JPY fell below 162.50 on May 20th.
• Additional rate hikes in Japan may be on the horizon, according to BoJ Deputy Governor Shinichi Uchida.
• Market expectations point to a 90% chance that the ECB will cut interest rates in early June.

EUR/JPY Loses Ground

The euro depreciated against the Japanese yen on Tuesday, with the EUR/JPY pair moving 0.23% lower to 162.46. The yen found support amid heightened expectations that the Bank of Japan (BoJ) will pursue additional interest rate hikes later this year. This sentiment put pressure on the euro, weakening the pair’s performance.

BoJ Rate Outlook Strengthens

The Bank of Japan plays an active role in currency policy, occasionally intervening directly to influence the yen. Shinichi Uchida, the BoJ’s Deputy Governor, stated that the central bank stands ready to implement further interest rate hikes if the domestic economy overcomes anticipated challenges, such as those that can result from the US duties imposed by the Trump administration.

While acknowledging significant uncertainty, Uchida reaffirmed the BoJ’s willingness to act in response to improving conditions for both economic activity and inflation. The BoJ’s most recent Summary of Opinions supports this stance, seeing as it revealed that policymakers remain open to rising rates should US tariff policies make it necessary.

ECB Faces Dovish Pressures

Investors are increasingly anticipating the European Central Bank (ECB) to ease monetary policy, with expectations of potential upcoming cuts being driven by a deteriorating economic outlook across the region. As revealed by a Reuters poll, current market sentiments point to a 90% chance of the ECB implementing a rate decrease in June. However, no further cuts are expected following the cut forecasted to be imposed during the June 5th meeting.

Pierre Wunsch, ECB policymaker and Governor of the National Bank of Belgium, recently told the Financial Times that the bank may need to lower interest rates below 2% due to “uncertainty on growth.” Wunsch also noted that tariffs introduced by US President Trump have contributed to deflationary pressures in the Eurozone.

Looking ahead, ECB officials like Piero Cipollone and Klaas Knot are scheduled to deliver remarks on Tuesday, which may provide further clarity on the Eurozone’s monetary policy outlook.