What Drives EUR/JPY: The Factors That Matter
A cross with no dollar in the quote but two dollar pairs underneath it. European policy meets Japanese risk sensitivity, and the result travels further than either component.
What drives EUR/JPY: factors in order of weight
- Risk sentiment, through the yen leg
- ECB policy expectations, through the euro leg
- Bank of Japan policy and any shift away from ultra-loose settings
- Euro area growth and inflation
- US yields, indirectly, because they move the yen
Where EUR/JPY data comes from
- European Central Bank — rate decision and press conference. Frequency: 8 meetings a year. primary source
- Bank of Japan — policy rate and yield curve policy. Frequency: 8 meetings a year. primary source
- Eurostat — euro area inflation and GDP. Frequency: monthly. primary source
- Statistics Bureau of Japan — Japanese inflation. Frequency: monthly. primary source
A cross assembled from two dollar pairs
The cross is assembled from EUR/USD and USD/JPY. When both move in a compatible direction their amplitudes add, and the cross travels further than either leg suggests on its own.
Which leg is actually moving
Amplitude is larger than either leg, and so is the cost of being wrong about which leg is driving.
Before European or Japanese data
Decompose the cross: look at EUR/USD and USD/JPY separately. One of them usually explains the move, which immediately tells you whether the driver is European or Japanese. Typical daily range here is 100 pips. News risk and this pair's hours are covered separately.
This material is educational and is not individual investment advice. Trading forex carries the risk of losing capital.
Frequently asked questions
What is the main driver of EUR/JPY?
Risk sentiment, through the yen leg. A cross with no dollar in the quote but two dollar pairs underneath it.
How does a rate decision reach the EUR/JPY exchange rate?
The cross is assembled from EUR/USD and USD/JPY. When both move in a compatible direction their amplitudes add, and the cross travels further than either leg suggests on its own.
What should I check before a release on EUR/JPY?
Decompose the cross: look at EUR/USD and USD/JPY separately. One of them usually explains the move, which immediately tells you whether the driver is European or Japanese.
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