EUR/JPY drops below 159.00 as Tokyo core inflation exceeds expectations

• EUR/JPY loses ground as the Japanese Yen strengthens following Tokyo CPI Data for November.
• Tokyo’s core inflation rose by 2.2% YoY, against the expected 2.1% increase, and marked the highest inflation reading in three months.
• Eurozone Core HICP inflation is anticipated to rise 2.8% YoY in November, compared to 2.7% increase in October.

The EUR/JPY pair loses momentum, trading around 158.80 during Friday’s Asian session, as the Japanese Yen (JPY) gains strength. This follows the release of Japan’s Tokyo Consumer Price Index (CPI) data for November, which exceeded expectations.

Headline Tokyo CPI rose by 2.6% year-over-year in November, a significant increase from 1.8% in October. Similarly, the Tokyo CPI excluding Fresh Food and Energy climbed 2.2% YoY, compared to 1.8% previously, and surpassed the market consensus of 2.1%.

In November, Tokyo’s core CPI increased by 2.2% year-on-year, up from 1.8% in October. This rise surpassed market expectations of a 2.1% increase and marked the highest inflation reading in three months. Tokyo’s inflation data is closely watched as a leading indicator for national price trends, with nationwide CPI figures usually released about three weeks later.

The core CPI has remained above the Bank of Japan’s (BoJ) 2% target, fueling expectations for a potential near-term rate hike. BoJ Governor Kazuo Ueda reaffirmed that the central bank would continue raising rates if inflation stays on course to sustainably achieve the 2% target.

European Central Bank (ECB) policymakers have voiced concerns over the Eurozone’s slowing economic growth, heightening expectations of a rate cut in December. However, uncertainty persists regarding the size of the potential reduction, as the market remains divided.

Traders are now closely watching Friday’s release of the Eurozone Harmonized Index of Consumer Prices (HICP) data. Core HICP inflation is projected to rise by 2.8% YoY in November, compared to 2.7% in October. This uptick could complicate matters for ECB officials, many of whom have recently sought to reassure investors of more rate cuts despite rising inflationary pressures.