EUR/JPY trades little changed as BoJ hike now priced in, Eurozone data upbeat

EUR/JPY is trading little changed in the mid 162.00s on Monday after recording a small rise following the release of relatively upbeat Eurozone figures, which showed the region recording a trade surplus in January, and the final revisions of February inflation data matching flash estimates. 

The Japanese Yen (JPY), meanwhile, trades subdued ahead of the Bank of Japan’s (BoJ) policy meeting on Tuesday. Although the BoJ is expected to raise interest rates from negative territory (minus 0.1%) at the meeting – a move that would be positive for JPY since higher interest rates attract more foreign capital inflows – the news appears to have already been digested by markets ahead of the event.  

The lack of more JPY buying in the run up to the meeting could be put down to the view that the rate hike may be a “one and done” rather than the start of a cycle. Deflation remains a hard nut to crack in Japan and although a recent round of wage negotiations has resulted in higher pay for workers, price gains have been hard won and some skepticism remains as to the longer-term inflation outlook, according to Bloomberg News. 

It may also be the case that stubbornly high inflation in the euro area is adjusting the outlook for interest rates there which is supporting the Euro (EUR). It is possible the European Central Bank (ECB) will need to keep interest rates higher for longer when compared to prior expectations, and this is supporting the Euro and EUR/JPY. 

The final revisions for the Harmonized Index of Consumer Prices for the Eurozone on Monday were in line with flash estimates of 2.6% YoY and 0.6% MoM for headline inflation, and 3.1% YoY and 0.7% MoM for core inflation, according to data from Eurostat. These figures are still above the same metrics for Japan.

The non-seasonally adjusted Eurozone Trade Balance data showed a surplus of 11.4B in January versus the 16.8B of December, whilst the seasonally adjusted figures came out much higher, revealing a surplus in January of 28.1B against a deficit of 14.3B in December.