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EUR/JPY rose to around 165.75 in Asia on Wednesday. The Bank of Japan announced a 15 basis point interest rate hike at its July meeting on Wednesday, and the yen fell after the announcement.
After a two-day meeting on Wednesday, the Bank of Japan unexpectedly raised its short-term interest rate target by 15 basis points to 0.15%-0.25% from 0%-0.1%. In addition, the Bank of Japan decided to reduce Japanese government bond (JGB) purchases to 3 trillion per month starting in the first quarter of 2026. The Japanese yen (JPY) fell despite the Bank of Japan raising short-term interest rates.
Disappointing economic growth and an unexpected rise in German inflation have increased uncertainty about further interest rate cuts by the European Central Bank in September. Germany’s Harmonized Index of Consumer Prices (HICP) rose 2.6% year-on-year in July, compared with 2.5% in June, above the consensus of 2.4%. The figure raises the prospect that Germany’s long-term stagflation will continue in the coming quarters.
Meanwhile, first estimates from Destatis on Tuesday showed the German economy shrank 0.1% in the quarter after growing 0.2% in the first quarter. The figure was below expectations of 0.1%. The euro zone economy grew 0.3% in the three months to the end of June, beating consensus expectations for a 0.2% month-on-month growth. Traders will get further clues from preliminary euro zone CPI data and German retail sales data due later on Wednesday.
