The divergence in monetary policy between the Bank of Japan and the European Central Bank draws attention, with the market betting on a stronger yen against the euro
The divergence in monetary policy between the Bank of Japan and the European Central Bank has attracted market attention, with traders betting on a stronger Japanese yen against the euro. Strategists from Rabobank, Nomura Securities, and Mizuho Securities expect the euro to fall to 140-150 yen by the end of next year. As the European Central Bank may continue to cut interest rates while the Bank of Japan has the potential to raise rates, the interest rate differential will drive the yen stronger. It is expected that by the end of 2025, the exchange rate of the yen against the euro will rise to 140 yen
According to Zhitong Finance APP, the euro against the yen is receiving increasing attention as the monetary policy divergence between the two regions seems to provide opportunities for this currency pair. As the eurozone economy struggles, the European Central Bank is expected to continue cutting interest rates, with a potential reduction of 25 basis points next month. Meanwhile, the market anticipates that the Bank of Japan will continue to advance its monetary policy normalization, with a roughly 50% chance of an interest rate hike next month.
Relatively high interest rates typically boost the corresponding currency as they attract funds seeking higher returns. Therefore, the aforementioned policy divergence has led traders to bet on a relative strengthening of the yen against the euro. It is reported that Rabobank, Nomura Securities, and Mizuho Securities strategists expect the euro against the yen to fall to a low of 140-150 yen per euro by the end of next year. The exchange rate has been outside this range since June 2023 and is currently hovering around 164 yen per euro.
The uncertainty regarding the Federal Reserve's future interest rate cuts, along with potential policies that may be implemented following Trump's election as U.S. president, has brought uncertainty to the performance of the dollar. In this context, some strategists have gained a clearer understanding of the euro against the yen's trend.
Nomura Securities forex strategist Moteki Jin stated, "The Bank of Japan may raise interest rates multiple times in the first half of next year. Therefore, if this occurs, the interest rate differential will continue to develop in favor of a stronger yen against the euro." Mizuho Securities predicts that the yen against the euro exchange rate will rise to 140 yen per euro by the end of 2025, which would be the highest level since March 2023.
Rabobank also believes that the yen against the euro may strengthen, but its forecast is more cautious. Jane Foley, head of forex strategy at Rabobank, stated in a report, "We expect the European Central Bank's dovish stance to weaken the euro's resilience next year, and we believe there is room for the euro against the yen exchange rate to fall to 150 yen per euro in 12 months." "The eurozone is also plagued by structural issues and insufficient investment."