EUR/JPY came under pressure in early European trading on Monday, slipping toward 180.45 as the Japanese Yen (JPY) found renewed strength following fresh remarks from Bank of Japan (BoJ) Governor Kazuo Ueda. Traders now brace for the release of manufacturing PMI data from the Eurozone, Germany, and France later today, which could influence the next directional move for the pair.
BoJ Governor Ueda reinforced expectations for another interest rate hike, pushing Japanese government bond yields to their highest levels in years. He noted that the central bank remains prepared to tighten policy further if inflation and economic conditions continue to evolve in line with forecasts.
Market drivers
Ueda also emphasized that the probability of the BoJ’s baseline scenario for growth and inflation being realized is gradually increasing. Markets reacted swiftly, with traders now pricing in roughly a 76% chance of a rate hike at the BoJ’s December 19 meeting – up from around 58% at the end of last week.
Across Europe, the Euro is finding some stability amid rising confidence that the European Central Bank (ECB) has completed its rate-cutting cycle. ECB President Christine Lagarde said last week that interest rates are now at the “right level,” while Governing Council member Joachim Nagel expressed comfort with the current policy stance.
Looking ahead, Tuesday’s release of the Eurozone Harmonized Index of Consumer Prices (HICP) will be crucial for EUR outlook. Consensus forecasts point to headline inflation rising 2.2% YoY in November, with core HICP expected at 2.5%. Any upside surprise in the data could offer the Euro fresh support against the Yen in the near term.
