EUR/JPY extends the rally near 163.15 amid the risk-on mood in Monday’s early European session.
Kyodo News agency reported Japanese government is considering announcing an end to deflation, raising the possibility of policy tightening.
ECB is expected to leave the interest rate unchanged at its March meeting on Thursday.
Japan’s February Consumer Price Index (CPI) on Tuesday will be a closely watched event ahead of the ECB rate decision.
The EUR/JPY cross holds above the 163.00 mark during the early European session on Monday. The risk-on environment in the market provides some support to the Euro (EUR) and creates a tailwind for the EUR/JPY cross. Nonetheless, the possibility that the Bank of Japan (BoJ) will shift its monetary policy stance might cap further losses of the Japanese Yen (JPY). At press time, EUR/JPY is trading at 163.15, gaining 0.26% on the day.
A growing speculation that the BOJ will change its monetary policy path, which might lift the Japanese Yen (JPY). The BoJ policymaker Hajime Takata signaled the exit of its ultra-loose monetary policy as the central bank is on the path of achieving the 2% inflation target. Furthermore, the Japanese government is considering announcing an end to deflation, according to the Kyodo News agency. This flagged the heightened risks of policy tightening.
On the Euro front, the European Central Bank (ECB) is expected to maintain the interest rate steady at its March meeting on Thursday, as ECB policymakers want to see additional evidence that recent falls in inflation will be sustained. According to the minutes of the ECB in January, the policymakers highlighted that continuity, caution, and patience were still needed. Additionally, the ongoing geopolitical tensions in the Middle East might raise the fear that inflation could rebound, which could delay the speculation about rate cuts from the ECB.
Market players will keep an eye on the Japanese Consumer Price Index (CPI) for February, due on Tuesday. The Eurozone Retail Sales will be released on Wednesday. The attention will shift to the ECB interest rate decision on Thursday as well as the ECB Press Conference. Traders will take cues from the data and find trading opportunities around the EUR/JPY cross.
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