Japanese GDP growth data on Tuesday will test the recent rally in the EURJPY exchange rate.
EURJPY – Daily Chart
The EUR v JPY was able to mount a sharp rally from the support near 155 and has resistance ahead at the 161.245 level. A breakout above that could look to move through some resistance toward 165.
Japan’s real wages dropped in January after two months of small gains, data showed on Monday. That was released days before the end of the annual pay negotiations held each spring at the country’s major firms. Despite regular pay rising by the most in more than 30 years and overtime pay increasing, inflation at a two-year high dragged down real wages.
The Bank of Japan is now expected to keep interest rates unchanged at its next policy meeting on March 18-19. BOJ officials have repeatedly talked of a desire for sustainable wage growth after the central bank’s January rate hike.
Inflation-adjusted real wages dropped 1.8% in January from a year earlier, labour ministry data showed.
Meanwhile, Inflation in Europe eased to an annual 2.4% in February, supporting the calls for another interest rate cut from the European Central Bank. However, the inability to find strong growth casts a shadow on the rate discussion and may require larger cuts.
The drop in consumer price inflation figure supports the view that the ECB is succeeding in its battle to get inflation back to its target of 2%.
Growth worries have returned after the eurozone stagnated in the last three months of 2024. Consumers are still hurting from the outbreak of inflation and are cautious in their spending habits. Businesses are now concerned about possible new tariffs on exports to the US under President Donald Trump. After years of economic struggle, tariffs would only worsen the situation and the fallout with the US over Ukraine also means that the decision to ramp up defense spending could keep Europe’s economy trapped.
In the near-term, the euro will look to keep the current rally going unless Japan’s GDP data can boost expectations.
