EUR/JPY rebounds from weekly lows after decelerated Japan CPI, edges higher to near 160.60

EUR/JPY snaps its four-day losing streak, rebounding to near 160.60 during the European session on Friday. The decelerated Japanese inflation numbers have weakened the Japanese Yen (JPY), which in turn, acts as a tailwind for the EUR/JPY cross.

The annual Tokyo Consumer Price Index (CPI) in Japan's national capital decelerated to 1.6% in January from the previous reading of 2.4%. Consumer inflation has fallen below the Bank of Japan's (BoJ) 2.0% target for the first time in nearly two years. Moreover, Core CPI (YoY) decreased to 3.1% from 3.5% prior.

According to the Bank of Japan (BoJ) Minutes of the December meeting, BoJ Board members expressed their views on the monetary policy outlook and Yield Curve Control (YCC). The consensus among members was the need to "patiently maintain an easy policy." Many members emphasized the importance of confirming a positive wage inflation cycle before considering an end to negative rates and YCC.

Furthermore, BoJ Governor Kazuo Ueda reiterated a strong commitment to achieving the 2.0% inflation target. Ueda's statements indicated a potential gradual reduction of extensive stimulus measures in the future, aligning with the central bank's goals for inflation and economic stability.

On the other side, the European Central Bank (ECB) decided to keep its interest rates unchanged for a third consecutive meeting, contributing to downward pressure on the Euro (EUR). This, in turn, has weighed on the EUR/JPY cross. The ECB maintained its Main Refinancing Operations Rate at 4.50%, and the Deposit Facility Rate at 4.0%.

ECB President Christine Lagarde hinted at the possibility of a rate cut in the summer in the monetary policy statement. Market participants are anticipating a first 50 basis point cut from the ECB by June. Rate swaps currently reflect expectations of a total of 140 basis points in rate cuts from the ECB by the end of 2024.