EUR/JPY slips firmly to below 141.50 as Tokyo Inflation matches consensus

• EUR/JPY has sensed selling interest, which has dragged it to near 141.00 as Tokyo inflation continues its upside trend.
• A survey from Bloomberg shows two half-point hikes in February and March, followed by a 25 bps increase later.
• The US and EU are discussing a possible deal on minerals and vital raw materials.

The EUR/JPY pair witnessed an intense sell-off by the market participants after failing to recapture the critical resistance of 142.00 in the late New York session. The cross has extended its losses after surrendering the critical support of 141.50 to near 141.26 after the release of the Tokyo inflation report.

The annual headline Consumer Price Index has landed at 4.4% in line with the expectations and higher than the former release of 4.0%. Tokyo’s inflation that excludes food and energy prices has landed at 3.0%, higher than the estimates of 2.9% and the prior release of 2.7%. Rising prices of food items and energy are supporting the Consumer Price Index (CPI). Also, the Japanese administration is strongly working on improving wages to keep inflation at the required levels confidently.

The Euro is dancing to the tunes of the European Central Bank (ECB), which will announce the interest rate decision next week. ECB President Christine Lagarde is expected to hike interest rates by 50 basis points (bps) ahead to 2.50%. According to a survey from Bloomberg, the deposit rate will be raised to a peak of 3.25% — from its current level of 2% in three steps. The survey shows two half-point hikes at the February and March meetings, followed by a 25 basis-point increase in May or June.

Inflationary pressures in Eurozone have dropped to a single-digit figure led by softening energy prices but rising wage growth is still posing an upside risk for inflation.  ECB Governing Council member Gabriel Makhlouf cited this week "We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions," He further added "Our future policy decisions need to continue to be data-dependent given the prevailing uncertainty," as reported by Reuters.

On the trading front, The United States and the European Union are having discussions about a possible deal on minerals and vital raw materials so that the latter would qualify for benefits in US President Joe Biden’s massive new green investment plan.