The EUR/JPY pair recovers from losses in the previous session, trading around 161.40 during the Asian session on Wednesday. The Japanese Yen (JPY) is under pressure as traders increasingly expect the Bank of Japan (BoJ) to keep interest rates unchanged during its upcoming meeting on Thursday.
Japan’s Trade Data and BoJ Expectations Weigh on JPY
Japan’s trade balance showed unexpected improvement for November, narrowing to ¥117.6 billion from October’s ¥462.1 billion deficit. This improvement was largely driven by a 3.8% year-on-year increase in exports, supported by a weaker Yen and rising demand from key trading partners, including the US and China. However, the drop in imports by 3.8% indicates persistent weak domestic demand, contributing to the bearish sentiment surrounding the Yen.
Traders also remain cautious ahead of the BoJ’s policy meeting, with many anticipating no change to interest rates. Concerns about a potentially uncertain economic outlook, coupled with the impact of US President-elect Donald Trump’s tariff plans, are likely contributing factors that have prompted the BoJ to avoid tightening its monetary policy at this stage.
Euro Faces Headwinds Amid ECB’s Dovish Outlook
While the Euro has gained some ground against the JPY, it faces its own set of challenges. European Central Bank (ECB) President Christine Lagarde’s comments at the Annual Economics Conference on Wednesday indicated the possibility of further rate cuts if data confirms that disinflationary pressures remain intact. Lagarde’s remarks signal a shift in policy stance, moving away from the ECB’s previous preference for maintaining “sufficiently restrictive” rates, which may weigh on the Euro.
Adding to the downside pressure, recent data from the Eurozone showed that the December PMI figures beat expectations, but the Services PMI still remains in contraction territory. This highlights concerns about an ongoing economic slowdown in Europe, dampening investor confidence. Traders are now awaiting the release of the Eurozone Harmonized Index of Consumer Prices (HICP) data later on Wednesday for further direction.
Technical Outlook for EUR/JPY
The EUR/JPY cross could face some resistance in the near term as the Euro grapples with a dovish ECB outlook, while the Japanese Yen remains vulnerable ahead of the BoJ meeting. The current upside for the pair is capped by a mix of Eurozone economic concerns and potential rate cuts by the ECB. On the flip side, the Yen’s weakness, driven by the BoJ’s likely stance, could keep the EUR/JPY pair buoyed in the near term.
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