Euro continues to underperform against Japanese Yen, ECB policy awaited

The Euro (EUR) is down 0.27% to near 178.50 against the Japanese Yen (JPY) during the European trading session on Wednesday, closer to its almost 10-month low of 177.85 posted the previous day.

The cross remains under pressure due to the continued outperformance by the Japanese currency.

The Asia-Pacific currency remains firm as market experts hope the Bank of Japan (BoJ) to continue its monetary tightening cycle despite raising interest rates in the upcoming policy meeting next week.

Yen strength underpinned as Deutsche Bank sees BoJ poised for further tightening

Analysts at Deutsche Bank argue that the latest upside surprise in Japan’s wage data “reinforces the overwhelming case for the Bank of Japan (BoJ) to raise interest rates at next week’s policy meeting, following its previous hike three months ago,” adding that it also “supports the prospect of further monetary policy tightening in the months ahead.”

Meanwhile, financial market participants are also discussing the likelihood of a 50 basis points (bps) interest rate hike by the BoJ in the policy meeting on September 18.

Rabobank said in a note that market chatter around the prospect that the BoJ “might even think about a 50bps hike” has also intensified.

On the Euro front, investors await the European Central Bank’s (ECB) monetary policy announcement on Thursday. The ECB is widely anticipated to hike policy rates in the meeting, which underpins investors' focus on the central bank’s remarks on the interest rate outlook.

Survey points to divided views on ECB terminal rate

Analysts at Deutsche Bank highlight that “current market pricing implies that the ECB should hike to around 3% by the middle of next year,” but their latest survey shows investors are far from united on how far the current tightening cycle will ultimately go. They note that respondents “are divided as to how far the ECB will go with this hiking cycle,” with views on the terminal rate “fairly evenly split across 2.50% (31%), 2.75% (37%) and 3.00% (26%).”