The EUR/JPY cross attracted buying interest around 157.70 during the Asian trading hours on Friday, as the Japanese Yen (JPY) softened following remarks from Japanese policymakers. Japan’s Finance Minister, Katsunobu Kato, warned that rising long-term government bond yields could strain the country’s fiscal health, leading to increased debt-servicing costs. The JPY edged lower in immediate response to these comments, which raised concerns about the fiscal impact of higher yields.
Investors are also looking ahead to the preliminary HCOB Purchasing Managers Index (PMI) for February from Germany and the Eurozone, set for release later on Friday, for additional direction on the Euro (EUR).
On the data front, Japan’s core inflation showed signs of persistence, with the National Consumer Price Index (CPI) rising 4.0% year-on-year (YoY) in January, surpassing the previous reading of 3.6%. The CPI excluding fresh food increased by 3.2% YoY, higher than the market consensus of 3.1% and up from the prior 3.0%. These hotter-than-expected inflation figures are likely to strengthen the Bank of Japan’s (BoJ) hawkish stance on monetary policy, potentially limiting the downside for the JPY.
BoJ Governor Kazuo Ueda also indicated his willingness to continue raising interest rates if wages rise further, supporting consumption and allowing companies to maintain pay hikes.
Meanwhile, speculation surrounding potential interest rate cuts by the European Central Bank (ECB) has weighed on the Euro. Analysts expect the ECB to reduce rates by a quarter point at each meeting until mid-2025, bringing the deposit rate down to 2.0%. This outlook could put additional pressure on the EUR in the medium term.
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