EUR/JPY rises to near 163.00 as uncertainty persists over timing of BoJ’s rate hikes

• EUR/JPY strengthens as Japan’s Economy Minister, Ryosei Akazawa, offers no clear indication of when the BoJ may raise interest rates.
• Japan’s Overall Household Spending contracted by 0.4% YoY in November, better than the expected 0.6% decline.
• The Euro may struggle as traders expect the EC to implement a 25 basis point rate cut in January.

EUR/JPY recovers its recent losses from the previous session, trading around 163.00 during the Asian hours on Friday. The recent rise in the EUR/JPY cross is attributed to the weaker Japanese Yen (JPY), as uncertainty continues over the timing of interest rate hikes by the Bank of Japan (BoJ).

Japan’s Economy Minister, Ryosei Akazawa, stated on Friday that the country is at a “critical stage” in overcoming the public’s deflationary mindset. Akazawa added, “Once we can officially declare the end of deflation, we will be able to stop using the tools we’ve had in place to combat it.”

In November, Japan’s Overall Household Spending contracted by 0.4% year-over-year in real terms, which was less than the expected 0.6% decline and an improvement from the 1.3% drop seen the previous month. Additionally, JP Foreign Reserves fell by $8.28 billion to $1.12 trillion in December, marking the lowest level since July.

In the Eurozone, inflation increased to 2.4% in December, up from 2.2% in November, while retail sales saw a modest rise of 0.1% month-over-month in November, following a 0.3% decline in October. However, analysts believe this won’t deter the European Central Bank (ECB) from implementing a 25 basis point (bps) rate cut in January.

Markets are currently pricing in a 96% probability of a 25 bps rate cut this month, and expectations for further easing in 2025 have been reduced to three quarter-point cuts, with a 70% chance of a fourth.