- EUR/JPY softens to near 156.65 in Tuesday’s early European session.
- Rising bets on the BoJ rate hike support the JPY.
- Investors will closely monitor how soon the conservative Christian Democrats could form a coalition government.
The EUR/JPY cross loses ground to around 156.65 during the early European session on Tuesday. The rising speculation that the Bank of Japan (BoJ) will hike interest rates further supports the Japanese Yen (JPY). Later on Tuesday, the German Gross Domestic Product (GDP) for the fourth quarter (Q4) will be released.
Japan’s Services Producer Pricing Index (PPI) released earlier on Tuesday, supports the case of BoJ rate hike. This comes on top of Japan’s robust consumer inflation numbers, reaffirming the prospect that the BoJ would raise interest rates further, which continues to support the JPY.
On the Euro front, the conservative alliance made up of the Christian Democratic Union (CDU) and its allies the Christian Social Union (CSU) is set to lead Germany again following the federal election on Sunday. Investors will closely monitor how soon the conservative Christian Democrats could form a coalition government to offer much-needed reform to a struggling economy.
Meanwhile, the dovish stance of the European Central Bank (ECB) could drag the Euro (EUR) lower. The ECB policymaker Francois Villeroy de Galhau suggested the ECB could lower its deposit rate to 2% by summer, per Reuters.
