The EUR/JPY cross remains below the key level of 163.00 during the early European session today, influenced by a combination of factors affecting both the Euro (EUR) and the Japanese Yen (JPY). The prevailing concern about a technical recession in Japan, coupled with a risk-on sentiment, is weighing on the JPY. However, the downside for the JPY might find a limit as Japanese authorities signal potential intervention in the foreign exchange (FX) market. As of now, the cross is trading near 162.85, reflecting a marginal 0.01% decline for the day.
European Central Bank (ECB) Governing Council member Yannis Stournaras remarked on Friday that despite inflation appearing on track to meet the 2% target this year, the central bank won‘t have sufficient data to consider interest-rate cuts until June. Conversely, ECB policymaker Mario Centeno expressed the possibility of rate cuts next month if data supports it, albeit as a low-probability event. This divergence in monetary policy between the ECB and the Bank of Japan (BoJ) provides support to the Euro and acts as a headwind for the EUR/JPY cross.
Japan recently entered a technical recession as its Gross Domestic Product (GDP) unexpectedly contracted for two consecutive quarters, causing it to lose its status as the world’s third-largest economy to Germany. The weaker GDP growth may prompt the BoJ to delay an exit from negative interest rates, resulting in a depreciation of the JPY against its counterparts.
However, verbal intervention from Japanese authorities, notably Finance Minister Shunichi Suzuki, who emphasized closely monitoring FX movements with a high sense of urgency, could potentially bolster the JPY.
Looking ahead, the economic calendar is poised for key releases, including Japan’s Consumer Price Index (CPI) for January on Tuesday, and significant data from Germany later in the week. The Eurozone Harmonized Index of Consumer Prices (HICP) data on Friday will likely be closely watched by traders for potential trading opportunities around the EUR/JPY cross. As economic indicators unfold, market participants will navigate and adjust positions based on the evolving landscape of these crucial data points.
