EUR/JPY jumps further despite German HICP softens beyond expectations

• EUR/JPY extended upside near 157.50 as German HICP remained softer than expectations.
• German HICP expanded at a slower pace despite rising energy prices.
• The odds for BoJ’s intervention are high as Kazuo Ueda conveyed it is premature to ditch easy monetary policy.

The EUR/JPY pair stretched upside to near 157.50 in the late European session. The asset rallies as the preliminary German Harmonized Index of Consumer Price (HICP) report for September remained softer than expectations.

Monthly HICP expanded at a slower pace of 0.2% against expectations of 0.3% and August’s reading of 0.4%. On an annualized basis, the headline HICP softened to 4.3% vs. the estimates of 4.5% and the former release of 6.4%. Inflation in the German economy decelerated despite rising energy prices. This indicates that households’ demand is weakening as inflation bites real income.

In spite of inflation softening in Germany, the odds for one more interest rate hike from the European Central Bank (ECB) remain intact. ECB President Christine Lagarde said this week that despite progress on inflation it is seen too high for too long as the labor market has so far remained resilient. She made it very clear that interest rates will remain sufficiently restrictive for long enough till inflation comes down to near 2%.

For further guidance, investors will focus on the Eurozone HICP data, which will be published on Friday at 09:00 GMT.

On the Japanese Yen front, expectations for a stealth intervention by the Bank of Japan (BoJ) in the FX domain due to excessive currency volatility have deepened. The Japanese Yen has dropped to near 150.00 against the US Dollar. The odds for BoJ’s stealth intervention are high as Governor Kazuo Ueda conveyed that it is premature to ditch expansionary monetary policy as inflation needs to stabilize above the 2% target.