EUR/JPY retreats despite the technical recession in Japan, edges lower to near 161.10

EUR/JPY retreats from recent highs after Japan's top officials hinted at a potential intervention in the Forex market to curb further weakness in the Japanese Yen (JPY). Additionally, the escalated geopolitical tensions in the Middle East boost demand for the safe-haven JPY and drags the EUR/JPY cross to 161.10 during the European session on Thursday.

On Thursday, Japan's Economic Minister Yoshitaka Shindo commented that specific monetary policy measures are within the purview of the Bank of Japan (BoJ) to determine. He acknowledged that the BoJ considers a variety of data, including consumption patterns, economic projections, and associated risks when formulating monetary policy.

Economic Minister Shindo expressed expectations for close collaboration between the BoJ and the government to implement suitable monetary policies aimed at sustainably achieving the price stability target, alongside fostering wage growth.

The preliminary Japan’s Gross Domestic Product (GDP) eased to a 0.1% decline QoQ from the previous decline of 0.8%, against the expected increase of 0.3% in the fourth quarter. The weak fourth-quarter Gross Domestic Product (GDP) figures in Japan add complexity to the monetary policy outlook for the Bank of Japan (BoJ).

Rather than experiencing slight growth compared to the third quarter, the economy faced contraction once again. This development indicates that Japan has entered a technical recession in the latter half of 2023, as negative growth persisted in the third quarter, albeit at a more significant magnitude.

However, the Euro (EUR) encountered obstacles subsequent to the publication of the seasonally adjusted Eurozone Gross Domestic Product (GDP) data on Wednesday, which remained unchanged as anticipated for the fourth quarter. Despite this, the ECB's forward-looking wage tracker continues to signal robust wage pressures.

Christine Lagarde, President of the European Central Bank (ECB), remarked that recent data suggests continued subdued economic activity in the near term. While acknowledging the ongoing disinflationary trend, Lagarde stressed the importance of instilling confidence that this trajectory will ultimately lead to the sustainable attainment of the ECB's 2% inflation target.