EURJPY Exchange Rate Analysis
Current Market Overview
The EURJPY exchange rate has recently exhibited signs of near-term weakness as it approaches the release of key European economic data. Following a breakout above the July 2024 high, the currency pair has encountered resistance at the uptrend line, indicating potential for a pullback, which may present a buying opportunity. Notably, support levels are clustered around the 180.00 price mark.
Upcoming Economic Data
On Wednesday, German retail sales data is set to be released at 2 PM HKT, with expectations of a 0.2% increase following a previous decline of 0.3%. The annual growth rate for retail sales was recorded at 0.9% last month. Additionally, European consumer prices will be reported at 5 PM HKT, anticipated to remain stable at 2.4%. This comes after a decrease in inflation for German consumers, which fell to 1.8% year-on-year in December from 2.3% in November.
Inflation Outlook
Economists predict that inflation in Germany will remain above the 2% threshold through 2026, as the country continues to recover from a prolonged period of high inflation. The inflation rate peaked at 6.9% in 2022 and was at 5.9% in 2023. The Ifo Institute in Munich forecasts inflation to stabilize at 2.2% in 2026, with a slight increase to 2.3% in 2027. This situation keeps the European Central Bank's monetary policy plans intact, although any weakness in retail sales or consumer prices could alter this outlook.
Japanese Yen Dynamics
The Japanese yen has been depreciating against global currencies, primarily due to concerns regarding Japan's debt levels and bond market stability. Additionally, GDP growth expectations are weakening, exacerbated by currency depreciation and tourism-related issues. According to the International Monetary Fund, Japan's economy is projected to fall behind India by 2026, potentially ranking fifth globally. This trend poses a risk to the yen's status as a safe-haven currency.
Economic Performance and Future Prospects
Japan's economy experienced a contraction for the first time in six quarters during the July-September period, attributed to reduced exports impacted by U.S. tariffs and other economic challenges. Furthermore, China's advisory for tourists to avoid Japan could negatively affect the tourism sector. On a brighter note, corporate profits in Japan are expected to remain robust through 2026, which may provide some support to the economy.