The EUR/JPY cross remains largely flat during the early European trading session on Friday, holding firm near the 161.85 mark amid notably thin liquidity conditions due to the Good Friday market holiday. The pair is exhibiting resilience despite a backdrop of persistent global trade uncertainties and mixed economic data from both Japan and the Eurozone.
Trade War Developments Continue to Cast a Shadow
Investor sentiment continues to be clouded by the ongoing effects of former US President Donald Trump’s aggressive trade policies, a lingering source of global market uncertainty. Nevertheless, there was a glimmer of optimism after Trump hinted on Thursday that negotiations with key trading partners could eventually lead to lower tariffs, raising hopes for some de-escalation in trade tensions.
While the renewed optimism offers some support to risk-sensitive assets, it simultaneously undermines traditional safe-haven currencies such as the Japanese Yen (JPY). Traders are cautiously navigating these headlines, balancing the prospect of improved trade relationships against the very real risk that trade frictions could flare up again without warning.
Japanese Inflation Data Signals Persistent Price Pressures
On the domestic front, Japanese economic data released Friday provided important clues ahead of the Bank of Japan’s (BoJ) next policy meeting scheduled for May 1.
According to the Japan Statistics Bureau, the National Consumer Price Index (CPI) rose by 3.6% year-on-year (YoY) in March, marking the third consecutive year that headline inflation has remained comfortably above the BoJ’s 2% target. However, the figure did show a slight cooling from February’s 3.7% reading, indicating that while inflation remains elevated, momentum might be starting to ease.
In more granular details:
- Core inflation—which excludes volatile fresh food prices—rose by 3.2% YoY in March, ticking higher from February’s 3.0% figure. This reading was in line with market expectations, suggesting underlying price pressures remain firm.
- Core-core inflation—which strips out both fresh food and energy—accelerated to 2.9% YoY from 2.6% previously, indicating broader-based inflation gains across the economy.
These figures will likely keep the BoJ on a cautious path. Market participants expect the central bank to maintain its current ultra-loose monetary policy, including keeping interest rates steady at 0.5%, while possibly revising its growth forecasts lower amid the cloudy global economic backdrop.
ECB Turns Dovish Amid Rising Trade Pressures
Meanwhile, across the Eurozone, the European Central Bank (ECB) made headlines on Thursday by cutting its main interest rate by 25 basis points to 2.25%. The rate decision, coming against the backdrop of escalating global trade tensions, signals a shift towards a more accommodative stance to support the fragile European economy.
During the post-meeting press conference, ECB President Christine Lagarde voiced concern about the impact of US tariffs on European goods, which have surged from an average of 3% to 13%. She warned that the higher trade barriers were already having a chilling effect on economic activity across the bloc.
“The risks to the growth outlook have tilted to the downside,” Lagarde stated, underscoring the ECB’s move towards a more defensive monetary posture. FX strategist Kirstine Kundby-Nielsen of Danske Bank echoed this sentiment, noting, “The tone is dovish. Focus has shifted from upside inflation risks to downside growth risks.”
The ECB’s dovish shift could add pressure on the Euro, potentially limiting any upside against the JPY, even as Japanese yields remain relatively subdued.
Outlook: Consolidation Expected Amid Low Liquidity
With Good Friday market closures reducing trading volume across major financial centers, sharp price movements in the EUR/JPY pair are unlikely in the immediate term. However, next week could see renewed volatility as markets digest both the latest inflation readings and the broader implications of evolving trade negotiations.
For now, EUR/JPY is likely to consolidate above the 161.50 psychological support level, with traders awaiting clearer catalysts from upcoming central bank meetings and fresh macroeconomic data releases.
