Euro hits fresh monthly highs with Japanese Yen weakness raising intervention concerns

The Euro (EUR) extends its rally against the Japanese Yen (JPY) for the fourth consecutive day on Wednesday, reaching above 185.46 for the first time since an alleged intervention on April 30. The JPY has failed to draw support from Bank of Japan Governor (BoJ) Ueda’s hawkish comments and is dropping against its main peers, raising concerns of another intervention. 

Ueda warned about second-round effects from inflation on Wednesday and stated that central banks should not look at Oil prices in isolation, because a temporary energy shock “may turn lasting if it alters wages, expectations and price-setting behaviour.”

These comments feed expectations that the BoJ will tighten its monetary policy at its June 15 meeting. The positive impact on the Yen, however, was minimal, with investors’ concerns about the Japanese economy’s exposure to high Crude prices and the comparatively low yield of Japanese Government Bonds (JGB) undermining speculative demand for the Yen.

In the Eurozone, recent comments from European Central Bank (ECB) policymakers strengthened the case for a rate hike in June and provided support for the Euro. ECB Board member Isabel Schnabel said on Tuesday that “looking through the inflation spike is no longer an option” and that a June rate will be needed.  Also on Tuesday, ECB Chief Economist Philip Lane showed comfortable when asked about market speculation about an upcoming rate hike at an interview with Nikkei.