Image Source: Unsplash
 

• EUR/JPY steadies around 161.85 in Friday’s early European session. 
• Japan’s CPI inflation grew 3.6% YoY in March. 
• The ECB cut rates by 25 bps to 2.25% at the April meeting on Thursday. 

The EUR/JPY cross trades flat near 161.85 during the early European session on Friday. US President Donald Trump's trade war remains a source of deep uncertainty. However, Trump on Thursday offered some encouraging signals that negotiations with other countries could lead to lower tariffs. The optimism surrounding trade talks could undermine safe-haven currencies like the Japanese Yen (JPY). 

Japan’s National Consumer Price Index (CPI) grew 3.6% year on year in March, marking three straight years that the headline inflation figure is above the Bank of Japan’s (BoJ) 2% target, the Japan Statistics Bureau revealed on Friday. This figure was lower than the 3.7% recorded in February.

Meanwhile, the so-called “core-core” inflation rate, which strips out prices of both fresh food and energy, rose to 2.9% YoY in March from 2.6% in February. The core inflation, which strips out prices of fresh food, jumped to 3.2% YoY in March from the previous reading of 3.0%. The figure was in line with the market consensus. 

The data comes ahead of the BoJ's policy meeting on May 1. The BoJ is expected to keep interest rates steady at 0.5% and cut its growth estimates as Trump's steep tariffs cloud the economic outlook. Traders also closely monitor the developments in country-specific trade negotiations.

On the Euro front, the European Central Bank (ECB) cut its main interest rate by a quarter of a percentage point to 2.25% at its April meeting on Thursday, citing growing trade tensions after Trump’s tariffs sparked a global trade war. ECB President Christine Lagarde said during the press conference that US tariffs on EU goods, which had increased from an average of 3% to 13%, were already harming the outlook for the European economy. 

The dovish stance from the ECB could weigh on the shared currency against the JPY. "It has a dovish tone. Focus has shifted to looking at the downside risk to the growth outlook, rather than upside risk to inflation,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.  

More By This Author: