EUR/JPY attracts some sellers to near 161.00, ECB rate decision in focus

• EUR/JPY extends downside to around 161.05 in Thursday’s early European session, down 0.43% on the day. 
• The ECB is expected to cut rates at its January meeting on Thursday.
• Rising bets for more BoJ rate hikes lift the Japanese Yen and act as a headwind for EUR/JPY.

The EUR/JPY cross extends the decline to near 161.05 during the early European session on Thursday. The rising expectation that the European Central Bank (ECB) is set to kick off its 2025 meetings with another interest rate cut on Thursday continues to undermine the Euro (EUR) against the Japanese Yen (JPY). Also, the preliminary reading of Gross Domestic Product (GDP) from the Eurozone for the fourth quarter will be released later in the day. 

The ECB is widely anticipated to cut its key interest rate by another 25 basis points (bps) to 2.75% and continue its easing cycle amid an uncertain economic outlook and sticky service inflation. “We expect the ECB to cut by 25 basis points at each of the four governing council meetings in the first half of the year, lowering the policy rate to 2.00% by mid-year,” noted Mark Wall, chief economist at Deutsche Bank. 

Furthermore, the cautious sentiment and the rising speculation that the Bank of Japan (BoJ) will further raise the interest rates provide some support to the JPY and create a headwind for the cross. On Tuesday, former BoJ board member Makoto Sakurai said that broadening wage hikes, prospects of sustained price rises, and solid economic growth give the BoJ scope to continue raising rates steadily.