• EUR/JPY trades sideways as markets await key central bank decisions.
• Eurozone inflation shows a modest rebound but remains close to the 2% target.
• Bank of Japan is expected to hold rates despite energy-driven inflation pressures.

EUR/JPY trades around 183.50 on Wednesday at the time of writing, remaining virtually unchanged on the day as investors stay cautious ahead of the European Central Bank (ECB) and Bank of Japan (BoJ) monetary policy decisions on Thursday.

In the Eurozone, the latest inflation data point to a moderate but improving trend. The Harmonized Index of Consumer Prices (HICP) rose by 0.6% MoM in February, rebounding from a 0.6% decline in January, though slightly below initial estimates. On an annual basis, inflation stands at 1.9%, up from January’s 16-month of 1.7%. Core inflation also accelerates, with a monthly increase of 0.8% and an annual rate of 2.4%, reflecting more persistent underlying price pressures.

Against this backdrop, the European Central Bank is expected to keep its deposit rate unchanged at 2%, as inflation remains broadly aligned with its target. However, expectations diverge regarding the policy outlook. Interest rate futures are pricing in a hike by July and a meaningful chance of a second move by year-end, while economists largely anticipate a prolonged pause. Any hawkish tone during the press conference could support the Euro (EUR) against the Japanese Yen (JPY) in the near term.

In Japan, uncertainty remains elevated. The Bank of Japan is expected to leave its benchmark rate unchanged at 0.75%, maintaining a cautious stance despite inflationary pressures fueled by rising energy prices linked to Middle East tensions. Japan’s heavy reliance on energy imports complicates the balance between supporting growth and containing inflation.

Despite this expected pause, the Japanese central bank retains a hawkish bias. BoJ Governor Kazuo Ueda is likely to reiterate that the normalization path remains intact, while emphasizing the need to assess geopolitical risks and their impact on the economy. Markets continue to price in a potential rate hike as early as April, although this will depend heavily on energy price developments and wage growth dynamics.

In this environment, the balance between a cautious ECB and a gradually more hawkish BoJ is limiting directional moves in EUR/JPY, keeping the pair in a short-term consolidation phase.