EUR/JPY senses heat around 145.00 as street sees further tweaks in Japan’s YCC

The EUR/JPY pair has faced barricades around 145.00 after a recovery move in the Tokyo session. It looks like the cross has retreated on expectations that Bank of Japan (BoJ) Governor Haruhiko Kuroda could tweak the Yields Curve Control (YCC) on Japanese Government Bonds (JGBs), in his last monetary policy announcement.

A power-pack action is expected from the Japanese Yen as investors will keenly watch BoJ Kuroda last time dictating the monetary policy. Harsh struggles in lifting the labor cost index and spurting growth rates by the Japanese economy might compel the BoJ to sound dovish on interest rates. A continuation of an ultra-loose monetary policy is expected as Tokyo inflation showed a steep decline in January.

BoJ Governor Nominee Kazuo Ueda has already conveyed that inflationary pressures in the Japanese economy are coming from international forces and are not growing domestically. Therefore, the maintenance of an expansionary monetary policy is highly expected.

Over yield cap, Reuters reported that “With rising inflation pushing up long-term interest rates, some investors bet the BOJ may tweak yield curve control (YCC), such as by raising the 10-year yield cap, as early as next week's policy meeting.”

On the Eurozone front, the Euro is likely to dance to the tunes of German Retail Sales data. The monthly data is expected to deliver an expansion by 2.0% vs. a contraction of 5.3% released earlier. The release of the same will clear that retail demand is recovering again and could spurt inflation ahead.

European Central Bank (ECB) policymaker and Spanish central bank head Pablo Hernandez de Cos said on Tuesday, “Spanish core CPI is to remain high in the short term, then gradually decline.” This could force ECB President Christine Lagarde to go strong for interest rates beyond March.