EUR/JPY breaks below 174.00 after BoJ’s policy decision

• EUR/JPY depreciates as the BoJ decided to keep rates unchanged at 0.5% at its September meeting.
• Japan’s Core National Consumer Price Index rose 2.7% YoY in August, holding above the BoJ’s 2% target.
• The Euro may find support as traders price in an end to ECB policy easing.

EUR/JPY depreciates after registering nearly 0.5% gains in the previous session, trading around 173.90 during the Asian hours on Friday. The currency cross loses ground as the Japanese Yen (JPY) declines following the release of the Bank of Japan’s (BoJ) interest rate decision.

The BoJ decided to keep its interest rate unchanged at 0.5% at its September meeting, as widely expected. Japan’s Core National Consumer Price Index (CPI), excluding fresh food but including energy, rose 2.7% YoY in August, staying above the Bank of Japan’s 2% target and reinforcing expectations for another rate hike later this year.

Japan's annual inflation eased to 2.7% in August from 3.1% prior, marking the lowest reading since October 2024. Food prices in Japan rose by 7.2% YoY in August, down from a 7.6% increase the prior month, which had been the sharpest gain in five months.

The EUR/JPY cross may appreciate as the Euro (EUR) draws support amid rising expectations that the European Central Bank (ECB) is done cutting rates following the latest inflation figures. ECB Vice President Luis de Guindos said that the central bank should follow a "very prudent" approach given the high uncertainty. Guindos added that the current rate is appropriate given inflation trends and the transmission of monetary policy.

ECB Governing Council members Martins Kazaks and Gediminas Simkus said earlier this week that interest rates do not need further cuts at the moment, though they did not rule out a potential move in the future.