JPY edges lower after Lagarde comments on inflation

EURJPY extended its losses and remained tepid around 163.00 following an interview of European Central Bank President Christine Lagarde published by the Financial Times on Monday.

Lagarde emphasised that the central bank is nearing its goal of sustainably bringing inflation down to the medium-term target of 2%. However, she stressed the importance of continued vigilance, particularly concerning inflation in the services sector.

Earlier in December, Lagarde indicated that the ECB would consider further interest rate cuts if inflation showed continued progress toward the 2% target. She noted that aggressive measures to curb economic growth were no longer deemed necessary under such conditions.

This shift suggests that the ECB is gradually moving toward a more accommodative monetary policy stance as inflationary pressures ease.

Additionally, ECB Governing Council member Boris Vujcic stated on Saturday that the central bank plans to continue lowering borrowing costs in 2025, according to Bloomberg.

“The direction is clear—it’s a continuation of the path from 2024, with further reductions in interest rates,” he said.

In Japan, strong National Consumer Price Index data released on Friday left the door open for a potential interest rate hike by the Bank of Japan in January or March.

Inflation reached a three-month high of 2.9% year-over-year in November, up from 2.3% in October. Additionally, the annual core inflation rate rose to 2.7%, exceeding market expectations of 2.6%.

However, traders remain cautious about the BoJ’s intentions to hike rates further following the central bank’s decision to keep its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15-0.25%, in line with market expectations.

Traders are eagerly anticipating the release of the BoJ’s Meeting Minutes, scheduled for Tuesday.

(Source: OANDA)