EUR/JPY MOVES GRADUALLY TOWARDS 145.50 AHEAD OF EUROZONE INFLATION

EUR/JPY is marching towards 145.50 gradually as chances of more rates from the ECB look solid.

Along with Germany, the price index in Spain and France has also surprised market participants with an upside release.

Tokyo’s inflation is seen lower despite expansionary monetary policy from the BoJ.

The EUR/JPY pair is approaching the critical resistance of 145.50 gradually in the early Tokyo session. The cross rebounded firmly from below 144.00 after a perpendicular fall amid a surprise rise in the German Harmonized Index of Consumer Prices (HICP) (Feb) data. The annual preliminary HICP jumped to 9.3% against the consensus of 9.0% and the 9.2% figure released earlier. On a monthly basis, the German HICP has jumped by 1% vs. the expectations of 0.7%.

A surprise rise in German inflation has bolstered the expectations of further rise in interest rates by the European Central Bank (ECB). Along with Germany, the price index in Spain and France has also surprised market participants with an upside release.

It looks like the upbeat labor market is demanding higher wages from firms and then pumping extra funds into the economy. The street is already anticipating that Eurozone might avoid a deep recession, which could be backed by upbeat domestic demand.

Post-release of German inflation, ECB policymaker Joachim Nagel reiterated on Wednesday that further significant rate hikes beyond March may be needed, as reported by Reuters. He further added, "Energy price drop has no essential bearing on ECB's medium-term inflation projections." ECB policymaker expects the "German economy to contract in Q1; gradual pick up from Q2 seen but no major improvement seen."

For further action, Eurozone inflation data will be keenly watched, which is scheduled for Thursday. The preliminary Eurozone HICP (Feb) is seen declining to 8.2% from the former release of 8.6%. Apart from that, the Unemployment Rate (Jan) is expected to decline to 6.5% versus 6.6% released earlier.

The Japanese Yen is likely to dance to the tunes of the Tokyo inflation data, which will release on Friday.  Tokyo’s headline Consumer Price Index (CPI) (Feb) is expected to decline to 4.1% from the prior release of 4.4%. The Japanese economy is struggling to accelerate domestic demand despite immense initiatives from Bank of Japan (BoJ) policymakers and the administration.

On Wednesday, Bank of Japan (BoJ) board member Junko Nakagawa also cited the current monetary policy as appropriate as an expansionary policy is highly essential for supporting the economy and fueling wages.