EUR/JPY can fall a lot faster than it can rise from here – SocGen

Economists at Société Générale analyze EUR/JPY outlook and of ECB and BoJ meetings.

ECB to raise rates by 25 bps, BoJ will probably leave rates on hold

On Thursday, we expect the ECB to raise rates by 25 bps and likewise leave the door open for a further move if needed. 

On Friday, the BoJ will probably leave rates on hold but will they tweak their yield-curve control policy this month? We expect a move in September but he recognises the uncertainty as to the timing. If the BoJ does widen the trading band for JGBs, the Yen has plenty of room to rally. If it does not, the JPY will very likely weaken modestly (and we may see intervention as the MOF reacts). 

Given current expectations of the ECB being slightly more hawkish than the Fed, and given FX positioning (long EUR), the EUR/JPY can fall a lot faster than it can rise from here, even if there is a good chance of nothing much happening.