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Although the Bank of Japan doesn’t officially begin its two-day meeting until Tuesday, speculation is already growing that the central bank will embark on another round of quantitative easing. Citing a recent downgrade of Japan’s economic growth outlook, speculation is rising that the BoJ will take action to stimulate the economy, following the European Central Bank and U.S. Federal Reserve, both of which eased earlier in the month. This action is likely to underpin the EUR/JPY.
Providing additional support for the EUR/JPY will be concern about the developing conflict between China and Japan over an island. Because this may have economic ramifications for Japan, traders are already selling Yen and buying the Euro. If conditions don’t improve, look for this move to continue.
Better than expected improvements in the ZEW Economic Sentiment surveys could also give the Euro a boost versus the Japanese Yen.