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- EUR/JPY gains positive traction for the second straight day amid a broadly weaker JPY.
- BoJ rate hike bets, rising trade tensions, and recession fears could limit losses for the JPY.
- A modest USD bounce weighs on the Euro and might cap the cross ahead of the ECB.
The EUR/JPY cross attracts buyers for the second straight day and climbs back above the 162.00 mark during the Asian session on Thursday. The intraday move higher is sponsored by the offered tone surrounding the Japanese Yen (JPY), though it is likely to remain capped as traders might opt to wait for the European Central Bank (ECB) interest rate decision.
The ECB is widely expected to cut its key interest rate by 25 basis points (bps), marking the sixth straight reduction amid the softening inflation and escalating trade risks. In fact, the final readings from Eurostat published on Wednesday showed that headline inflation in the Eurozone eased to 2.2% year-on-year in March, down from 2.6% the previous month. Moreover, core inflation, which strips out volatile components such as energy and food, fell to 2.4%, or the lowest since January 2022.
Meanwhile, US President Donald Trump imposed a 20% reciprocal tariff on EU imports before pausing for 90 days in pursuit of bilateral trade deals. However, a blanket 10% import tariffs remain in place, affecting around €380 billion worth of European goods. This has been fueling economic uncertainty, which might force the ECB to take a more dovish approach and show more concern over growth. Hence, the focus will also be on the ECB’s updated economic projections and press conference.
Investors will closely scrutinize ECB President Christine Lagarde’s comments for cues about the future interest rate path, which, in turn, will play a key role in influencing the Euro and provide a fresh impetus to the EUR/JPY cross. Heading into the key central bank event risk, a positive risk tone is seen undermining the safe-haven JPY and acting as a tailwind for spot prices. However, a modest US Dollar (USD) bounce weighs on the Euro and should cap any meaningful upside for the cross.
Moreover, the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates in 2025, the rapidly escalating US-China trade war, and global recession fears might continue to support the JPY. This makes it prudent to wait for strong follow-through buying before placing fresh bullish bets around the EUR/JPY cross. Even from a technical perspective, the recent repeated failures to find acceptance above the 200-day Simple Moving Average (SMA) warrant some caution for bulls.
