EUR/JPY declines towards 139.00 as German Inflation grabs attention

• EUR/JPY is likely to drop further to near 139.00 as investors are cautious about Euro ahead of German inflation.
• Rising wage growth is infusing fresh blood into the Eurozone inflation.
• The BOJ has raised inflation targets substantially for CY2023 and 2024.

The EUR/JPY pair dropped to the psychological support of 140.00 as investors got cautionary ahead of the release of the German Harmonized Index of Consumer Prices (HICP), which will release on Tuesday. The cross dropped sharply late Friday as investors poured funds into the Japanese Yen led by the bond-buying program from the Bank of Japan (BOJ) last week.

The Euro is likely to witness a power-pack action after the release of the German HICP. As per the projections, the inflation indicator is seen higher at 11.8% vs. the former release of 11.3%. Lately, European Central Bank (ECB) President Christine Lagarde cited the rising wage rate as responsible for the continuous escalation of inflationary pressures. ECB President cited that the central bank must prevent this from adding to already high inflation, as reported by Reuters.

Meanwhile, analysts at Natixis believe that “In the Eurozone, the real long-term interest rate is well below potential growth, and the mortgage rate is lower than nominal wage growth; monetary policy is therefore completely expansionary.”

Apart from the German Inflation data, investors will also focus on German Unemployment data. The Unemployment Change (Dec) is expected to escalate to 27K against the former release of 17K. While the jobless rate might trim to 5.5% from the former release of 5.6%.

On the Tokyo front, the higher inflation forecast by the Bank of Japan (BOJ) is supporting the Japanese Yen bulls. Nikkei reported that the BOJ is considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024. While the core Consumer Price Index (CPI) is seen rising around 3% in fiscal 2022, between 1.6% and 2% in fiscal 2023, and nearly 2% in fiscal 2024.