The EUR/JPY has bounced back after a sharp decline attributed to Bank of Japan (BoJ) board member Seiji Adachi’s remarks on reducing bond purchases gradually to allow long-term yields to act as a market signal. Adachi did not specify a timeline for this adjustment.
Adachi also mentioned that any interest rate adjustments should be gradual if inflation approaches the 2% target. His cautious stance on interest rates has raised doubts about the BoJ’s plans for further policy tightening.
Market analysts believe that inflation in Japan is driven by a weak Japanese Yen, and any increase in interest rates should be supported by sustained wage growth to encourage consumer spending and boost prices.
This week, the Japanese Yen’s performance will be influenced by the release of the Tokyo Consumer Price Index (CPI) for May and Retail Trade data for April on Friday.
On the other hand, the Euro is facing pressure ahead of the release of preliminary German CPI data for May, expected to show an increase in the annual Harmonized Index of Consumer Prices (HICP) to 2.7%. This data will impact speculation regarding potential rate cuts by the European Central Bank (ECB), with expectations of rate reductions starting from the June meeting. The outcome of German inflation figures will play a significant role in shaping the ECB’s rate-cut decisions beyond June.