Euro holds gains against Japanese Yen amid hawkish ECB rate outlook

The EUR/JPY cross posts modest gains around 184.90 during the early European session on Thursday. The Euro (EUR) strengthens against the Japanese Yen (JPY) amid hawkish signals by European Central Bank (ECB) officials.

The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting. ECB policymaker Joachim Nagel said on Wednesday that the probability that the central bank will need to raise borrowing costs due to the Iran war is rising. 

Meanwhile, ECB Chief Economist Philip Lane argued that officials must carefully study the fallout on growth and inflation before making a judgment call, and that determining the appropriate monetary policy stance is a judgment call.

The Bank of Japan (BoJ) policy board member Kazuyuki Masu said on Thursday that the impact of the Iran war-driven energy shock on Japan’s economy may be more severe than the 1973 oil crisis, and the risk requires attention. Masu added that with the policy rate near the estimated neutral level, the central bank must more closely assess prices, employment and financial conditions for further moves.

Fears of further currency intervention from Japanese authorities could underpin the JPY and act as a headwind for the cross. Japan's Finance Minister Satsuki Katayama said last week that “regarding recent currency moves, we confirmed that Japan and the US have been coordinating very well and have maintained close communication.”