EUR/JPY continues its losing streak, drops below 142.60 as BoJ to consider YCC expansion

• EUR/JPY has carry-forwarded its three-day losing streak as the BoJ might consider an expansion in YCC sooner.
• Eurozone S&P Global Composite PMI recorded at 53.7, the highest in the past 10 months.
• Accelerating PMIs are supporting the continuation of rate hikes by the European Central Bank.

The EUR/JPY pair has continued its three-day losing spell after slipping below 142.60 in the Asian session. The cross is facing immense pressure as rumors of an expansion in the Yield Curve Control (YCC) by the Bank of Japan (BoJ) have been renewed.

Wages are growing gradually in the Japanese economy and the headline inflation is expected to react to recent higher oil prices ahead. Analysts at Wells Fargo believe that the BoJ will take advantage of a tactical opportunity to further tweak its policy settings in Q4-2022, and are lean towards the October meeting in terms of timing. They further added that this timeframe is most conducive for a smooth adjustment in policy as monetary easing from the Federal Reserve (Fed) among other major central banks should alleviate upward pressure on yields.

Specifically, the BoJ would lift the target for the 10-year Japanese government bond (JGBs) yield to 0.25% from 0% and will widen the tolerance band around that target to +/- 75 bps.

On the Eurozone front, accelerating PMIs are supporting for the continuation of rate hikes by the European Central Bank (ECB). On Wednesday, S&P Global reported the Composite PMI at 53.7, higher than the prior release of 52.0 but remained short of expectations at 54.1, the highest in the past 10 months.

S&P Global said in a statement, "Manufacturing production picked up slightly, but it was the service sector that had the strongest influence on March's accelerated upturn,” as reported by Reuters.

About interest rate guidance, ECB policymaker Boris Vujčić said on Wednesday, “The largest part of the rate-hiking cycle is behind us.” He further added, “To address core inflation, we might need to raise rates further.”