EUR/JPY extends gains above 143.50 as Eurozone Inflation hogs limelight

• EUR/JPY has extended its recovery to near 143.50 as risk appetite is gaining traction.
• Analysts are having mixed views on guidance over Eurozone inflation.
• The odds of the ECB’s bigger rate hike will remain solid despite a marginal decline in Eurozone HICP.

The EUR/JPY pair has extended its recovery above the immediate hurdle of 143.50 in the Asian session. Earlier, the cross resurfaced firmly after building a cushion marginally above 143.00. The pair could turn sideways ahead as investors are awaiting the release of the Eurozone Harmonized Index of Consumer Prices (HICP).

Meanwhile, an improvement in investors’ risk appetite has also supported the shared currency bulls. The cross is following the sentiment displayed by the EUR/USD pair. Going forward, the asset could test the round-level hurdle of 144.00.

According to the estimates, the headline HICP will decline to 10.4% vs. the prior release of 10.6%. While the core HICP data that excludes oil and food prices is seen unchanged at 5%. This might bring a sigh of relief to the European Central Bank (ECB). Analysts are having mixed views on inflation guidance citing volatile energy prices.

Analysts at Nomura believe that headline HICP inflation will accelerate by 0.2 pips to 10.8% YoY, whereas core HICP inflation to accelerate by 0.1 pips to 5.1% YoY. While other analysts see a decline in inflationary pressures but still believe that the risk of the inflation rate ending up higher in December is intact as food prices are continuously advancing and expectations of a marginal decline in headline HICP banks upon the recent drop in energy prices.

This won’t ease the odds of a higher rate hike announcement by the European Central Bank (ECB) ahead.

Meanwhile, the Japanese yen bulls have surrendered their optimism as risk aversion loses traction. In Tokyo chatters over the unwinding of the Bank of Japan (BOJ)’s monetary easing are not picking up further.  Earlier, a Reuters poll claimed that 90% of economists are expecting a wind-up of BOJ’s easing policy from the second half of CY2023.