EUR/JPY battles 142.50, upside remains favored ahead of ECB policy

• EUR/JPY is expected to overstep 142.50 after a mild corrective hiatus.
• The odds of widening ECB-BOJ policy divergence are accelerating sharply.
• A decline in Japan’s Overall Household Spending data has weakened the yen bulls.

The EUR/JPY pair has displayed a perpendicular rally in the Asian session after an upside break of the consolidation formed in a narrow range of 141.33-141.50. The cross has remained in the grip of bulls for the past month on expectations of a wider European Central Bank (ECB)-Bank of Japan (BOJ) policy divergence ahead.

For Thursday’s monetary policy meeting, the ECB is set to announce a rate hike by 50 basis points (bps). ECB President Christine Lagarde is entirely focused on containing inflationary pressures. Eurozone central bank’s most preferred inflation measure, Harmonized Index of Consumer Prices (HICP) has already sky-rocketed to 9.1% and it is highly needed to tame sooner. It is worth noting that the ECB has remained a little late in escalating interest rates unlike its Western peers, which adopted a sheer pace in hiking the same due to regional imbalance.

Meanwhile, accelerating energy prices are becoming havoc for the shared currency bulls. As Russia has cut off gas supplies to Europe through Nord Stream 1 pipeline in response to western sanctions and the winter season is on doors, which will demand more energy, the eurozone energy crisis is deepening further.

On the Tokyo front, Bank of Japan (BOJ)’s failure in escalating the demand by households has weakened the yen bulls. The central bank is continuously flushing liquidity into the economy to spurt retail growth; however, a decline in Overall Household Spending has demolished the prolonged BOJ’s prudent stance. The economic data landed at 3.4%, lower than the expectations of 4.2% and the prior release of 3.5%.