EUR/JPY Continues To Decline, Falling Below 142.60 As The BoJ Considers a YCC Expansion

The EUR/JPY pair extended its three-day losing streak after falling below 142.60 during the Asian trading session. Renewed rumors of an expansion of the Yield Curve Control (YCC) by the Bank of Japan (BoJ) are exerting enormous pressure on the cross.

Wages are increasing incrementally in the Japanese economy, and inflation is anticipated to respond to recent increases in crude prices. Wells Fargo analysts believe the BoJ will take advantage of a tactical opportunity to further adjust its policy settings in the fourth quarter of 2022, and are leaning toward an October meeting. They added that this timeframe is optimal for a seamless policy adjustment, as monetary easing from the Federal Reserve (Fed) and other major central banks should alleviate upward pressure on yields.

Specifically, the Bank of Japan (BoJ) will increase the target yield for 10-year Japanese government bonds (JGBs) from 0% to 0.25% and increase the tolerance interval around this target to +/- 75 basis points.

On the Eurozone front, accelerating PMIs provide support for the European Central Bank's continued rate increases. (ECB). On Wednesday, S&P Global reported a Composite PMI of 53.7, which was higher than the previous release of 52.0 but below expectations of 54.1, the highest level in the last ten months.

As reported by Reuters, S&P Global stated in a statement, "Manufacturing production increased slightly, but the service sector had the greatest impact on March's accelerated expansion."

Wednesday, ECB policymaker Boris Vuji stated regarding interest rate guidance, "The bulk of the rate-hiking cycle has passed." He added, "To address core inflation, we may require additional rate increases."