EUR/JPY remains capped below the 160.00 barrier following German HICP data

• EUR/JPY edges lower to 159.50 amid the risk-off sentiment.
• The German Harmonized Index of Consumer Prices (HICP) came in at 3.8% YoY in December vs. 3.8% prior, as expected.
• The markets anticipate the BoJ will end its negative interest rate, probably in April 2024.
• Traders await the January Zew Survey from Germany and the Eurozone, due later on Tuesday.

The EUR/JPY cross remains capped under the 160.00 barrier during the early European session on Tuesday. The December German inflation data came in as expected. Meanwhile, the safe-haven flows from an escalation of geopolitical tensions in the Middle East benefit the Japanese Yen (JPY) and weigh on the cross. At press time, EUR/JPY is trading at 159.50, down 0.11% for the day.

The latest data from the German statistics office Destatis revealed on Tuesday that the nation’s Harmonized Index of Consumer Prices (HICP) came in at 3.8% YoY in December from the previous reading of 3.8% and in line with the market expectation of 3.8%. On a monthly basis, the HICP figure arrived at 0.2% versus the 0.2% estimated in the previous reading. Furthermore, the December headline CPI figure rose 0.1% MoM and 3.7% YoY, respectively.

The European Central Bank (ECB) chief economist Philip Lane said on Saturday that the central bank will have key data by June to decide on the first of a likely series of interest rate cuts, but going too fast on easing may prove self-defeating. The markets expect the ECB to slash borrowing costs from record highs this year, beginning possibly as early as March.

On the other hand, the Organization for Economic Cooperation and Development (OECD) said last week that the Bank of Japan (BoJ) could start raising interest rates in early 2024, given that inflation will likely remain above the central bank's 2% target and wage dynamics are also changing. The central bank will closely monitor whether Japan will achieve robust wage growth. Market expectations are rising that the BoJ will end its negative interest rate, probably in April following the wage talks.

Late Monday, Iran launched ballistic missiles at what it said were Israeli "spy headquarters" near the US embassy in the northern Iraqi city of Irbil, as well as targets in northern Syria related to the terrorist organization Islamic State. The attacks come at a time when tensions in the area are high and there are worries about a greater spillover from the continuing conflict in Gaza. That being said, the rising tension in this region might boost the JPY and act as a headwind for the EUR/JPY cross.

The January Zew Survey from Germany and the Eurozone will be released on Tuesday. Later this week, the Harmonized Index of Consumer Prices from the Euro area and ECB Monetary Policy Meeting Accounts will be due on Wednesday. The Japanese Industrial Production report will be published on Thursday. Market players will take cues from the data and find trading opportunities around the EUR/JPY cross.