EUR/JPY approaches 160.00 despite soft Eurozone HICP data

• EUR/JPY aims to recapture 160.00 despite softening Eurozone inflation due to lower consumer spending.
• Eurozone’s headline HICP decelerated despite rising energy prices.
• Tokyo’s inflation eased nominally but remained well above BoJ’s target.

The EUR/JPY pair delivered a V-shape recovery from 157.40 despite the softer-than-anticipated Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) report for September.

The headline HICP grew at a slower pace of 0.3% against the 0.5% gain recorded in August. The annualized data decelerated sharply to 4.3% against expectations of 4.5% and August’s reading of 5.2%. Headline inflation in the Eurozone softened significantly despite rising energy prices due to a rally in global oil prices. This indicates a decline in consumer spending as high inflation has squeezed households’ real income.

A soft inflation report for September may encourage European Central Bank (ECB) policymakers to keep the monetary policy unchanged in November. ECB President Christine Lagarde clarified this week that interest rates will remain sufficiently high for long enough until the achievement of price stability.

Analysts at Commerzbank cited that the ECB is unlikely to raise rates further. They further added that almost half of the decline in September’s inflation report is due to one-off effects such as the expiry of the 9-Euro ticket in Germany in September 2022. But even after adjusting for these effects, the core rate is now also on a downward trend. A majority of the members of the ECB's Governing Council should be pleased with this.

On the Japanese Yen front, the odds of a probable intervention by the Bank of Japan (BoJ) in the FX domain are high as the central bank is not expected to make an exit from its decade-long ultra-loose monetary policy anytime soon. BoJ Governor Kazuo Ueda conveyed that it would be premature to drop expansionary monetary policy as inflation above the 2% target should be guided by wage growth.

Meanwhile, Tokyo inflation softened in September as consumer spending cooled down. The headline Consumer Price Index (CPI) softened marginally to 2.8% vs. the former reading of 2.9%. The Core CPI that excludes volatile oil and food prices decelerated to 3.8% from 4.0% in August but remained well above BoJ’s target.