EUR/JPY strives to test 158.00 as ECB prepares for a fresh rate hike cycle

The EUR/JPY pair is consistently making efforts for testing the critical resistance of 158.00 in the European session. The asset has faced selling pressure around 157.80 a few times despite investors hoping that the European Central Bank (ECB) is looking to raise interest rates further to tame stubborn inflation.

Inflation in Eurozone is turning critical as the headline and core Consumer Price Index (CPI) is showing wide deviation. A preliminary report for June has shown that the decline in the cost of gasoline prices is heavily weighing on the rising cost of services. Headline price pressures have softened to 5.5% in June vs. the prior release of 6.1%. This is the seventh decline in price pressures in the past eight months.

Meanwhile, core inflation that excludes volatile oil and food prices has softened marginally to 6.8% from the former release of 6.9%. Core inflation is the preferred gauge for ECB policymakers while building a roadmap for constructing monetary policy.

ECB President Christine Lagarde conveyed in the ECB forum of Central Banking that the interest rate policy is not sufficiently restrictive to bring inflation to 2%. The expectations for rate cuts are out of context amid severe stubbornness in inflation.

On the Japanese Yen front, signs Bank of Japan (BOJ) Deputy Governor Ryozo Himino said recent price rises were stronger than previously projected and inflation expectations were moving up, a sign the economy is getting closer to achieving the bank's 2% inflation target, as reported by Reuters.

BoJ Himino further added that signs of cost-push inflation are easing and demand-driven inflation is taking some place. This could be the outcome of an expansionary interest rate policy and rising wages.