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As The Market Anticipates Additional Changes To Japan's YCC, EUR / JPY Feels Pressure Around 145.00
Due to rising wagers on the expansion of the yield limit on JGBs, EUR / JPY has experienced selling pressure around 145.00. BoJ Ueda has already stated that the source of Japanese inflation is international forces and not domestic factors. A rebound in German Retail Sales could exacerbate inflationary pressures.
After a recovery move during the Tokyo session, the EUR / JPY pair has encountered resistance near 145.00. The cross appears to have retreated on expectations that Bank of Japan (BoJ) Governor Haruhiko Kuroda may modify the Yields Curve Control (YCC) on Japanese Government Bonds (JGBs) in his most recent monetary policy announcement.
As investors closely observe BoJ Kuroda's final monetary policy pronouncement, the Japanese Yen is anticipated to exhibit explosive behavior. The Bank of Japan (BoJ) may adopt a dovish stance on interest rates due to the difficulty of boosting the labor cost index and the accelerating growth rates of the Japanese economy. As a result of January's sharp decline in inflation in Tokyo, it is anticipated that the country's ultra-lax monetary policy will persist.
Kazuo Ueda, the nominee for Governor of the Bank of Japan, has already communicated that inflationary pressures in the Japanese economy stem from external forces and are not increasing domestically. Therefore, the continuation of an expansionary monetary policy is highly anticipated.
Concerning yield cap, Reuters reported, "With increasing inflation driving up long-term interest rates, some investors believe the BOJ may adjust yield curve control (YCC), such as by raising the 10-year yield cap, as early as the policy meeting next week."
On the Eurozone front, the Euro will likely sway to the beat of German Retail Sales data. The monthly data is anticipated to show an expansion of 2.0% compared to the 5.3% contraction previously reported. The dissemination of the same will demonstrate that retail demand is once again reviving and could stimulate inflation.
Pablo Hernandez de Cos, a policymaker at the European Central Bank (ECB) and the chief of the Spanish central bank, stated on Tuesday that "Spanish core CPI will remain high in the short term and then progressively decline." This may compel ECB President Christine Lagarde to advocate for interest rates beyond March.
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