- EUR/JPY is expected to tumble further as the market has turned cautious ahead of US inflation.
- The ECB kept its policy rates unchanged but sounded extremely hawkish on guidance.
- Japan has reached its inflation goals, however, the BOJ will stick to its prudent monetary policy.
The EUR/JPY pair is attempting a downside break of its consolidation formed in a narrow range of 142.28-14.70 in the Asian session. The cross witnessed a decent fall on Thursday after failing to overstep the seven-year high at 144.21. The ongoing negative market sentiment has underpinned the Japanese yen against the shared currency bulls.
The eurozone is expected to remain vulnerable as the European Central Bank (ECB) ignored the soaring inflation fears and dictated a neutral stance on the interest rates on Thursday. Market veterans were awaiting retaliation by ECB President Christine Lagarde against the galloping price pressures, however, the ECB stuck to its accommodative policy stance but dictated hawkish guidance for the remaining year.
As per the statement from ECB’s Lagarde, the central bank will end its Asset Purchase Program (APP) before July and will step up its interest rate cycle. A rate hike by 25 basis points (bps) in July and may be more than 50 bps rate hike in September. Also, the inflation situation will continue to torture the households in eurozone as a higher inflation rate will be majorly contributed by soaring oil prices due to Russia’s invasion of Ukraine and supply chain disruptions.
On the Japanese yen front, a continuation of ultra-loose monetary policy will keep the yen bulls on the sidelines. The Bank of Japan (BOJ) is continuously capping its 10-year Japanese bond yields at 025%, significantly lower than the respective G-10 countries. Also, Japan has finally reached its inflation goals above 2% but doesn’t warrant an end to the prudent monetary policy as higher price pressures are fueled by higher fossil fuel and commodity prices.
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