During the early European session on Tuesday, the EUR/JPY cross faced resistance under the 160.00 barrier, with safe-haven flows favoring the Japanese Yen (JPY) amid escalating geopolitical tensions in the Middle East. At present, the pair is trading at 159.50, reflecting a 0.11% decline for the day.
The December German inflation data, in line with expectations, failed to provide a significant catalyst for the EUR/JPY pair. The German Harmonized Index of Consumer Prices (HICP) stood at 3.8% YoY, meeting market forecasts. On a monthly basis, the HICP figure matched the 0.2% estimate from the previous reading. Additionally, December’s headline Consumer Price Index (CPI) rose 0.1% MoM and 3.7% YoY.
ECB Chief Economist Philip Lane stated over the weekend that the central bank would have crucial data by June to determine the timing of potential interest rate cuts. However, Lane cautioned against hasty easing, emphasizing the importance of a measured approach. Markets anticipate the ECB to consider lowering borrowing costs, possibly commencing in March.
Conversely, the Organization for Economic Cooperation and Development (OECD) projected last week that the Bank of Japan (BoJ) might initiate interest rate hikes in early 2024. The forecast is based on expectations that inflation will remain above the BoJ’s 2% target, coupled with evolving wage dynamics. Speculation is rising that the BoJ might end its negative interest rate policy, potentially in April following wage talks.
Late Monday, Iran’s ballistic missile attacks on alleged Israeli targets in Iraq and Syria added to the geopolitical tensions. This development, occurring amidst heightened regional concerns, could elevate the appeal of the JPY and present a headwind for the EUR/JPY cross.
Looking ahead, market participants are keenly anticipating the January Zew Survey from Germany and the Eurozone on Tuesday, while the Harmonized Index of Consumer Prices from the Euro area and ECB Monetary Policy Meeting Accounts are scheduled for Wednesday. Thursday will see the release of the Japanese Industrial Production report, providing traders with potential cues for navigating the EUR/JPY cross amidst ongoing geopolitical uncertainties and economic data releases.