EUR/JPY strengthens above 170.00 as ECB remains uncertain over rate-cut approach beyond June

• EUR/JPY holds strength above 170.00 as investors doubt subsequent rate cuts by the ECB.
• ECB policymakers remain comfortable with rate-cut expectations for June.
• Investors doubt that the BoJ will tighten policy further in the near term.

The EUR/JPY pair holds the psychological figure of 170.00 in Monday’s European session. The cross remains firm as investors worry about how the European Central Bank (ECB) will approach rate cuts beyond the June meeting.

The ECB is widely anticipated to start reducing interest rates from the June meeting. ECB policymakers are comfortable with market speculation for a rate cut in June despite a higher Q1 Negotiated Wage Rate. The wage growth data rose to 4.69% from the prior reading of 4.45%. However, ECB board member and Bundesbank President Joachim Nagel downplayed the effect of higher wage growth, stating that it is a lagging indicator and the long-term trend is expected to remain soft.

Therefore, investors have shifted their focus to the July meeting, where they expect that policymakers will observe the outcome of the rate-cut move on the economy and will follow suit based on the incoming data. ECB policymakers denied committing to any subsequent rate-cut moves.

In Friday’s European session, ECB Governing Council member Isabel Schnabel said that the adaptation of aggressive rate-cut cycle by the central bank could have significant consequences. She agreed that there is a noticeable decline in price pressures but some elements such as domestic and service inflation are still persistent.

On the Tokyo front, the Japanese Yen remains downbeat as investors doubt that the Bank of Japan (BoJ) have more room for further policy tightening. Last week, Japan’s National Consumer Price Index (CPI) report showed that inflation declined for the second straight month. Though price pressures remain above the 2% target, it is still insufficient for policymakers to raise interest rates again.

Meanwhile, the release of the Japan’s latest economic assessment report of May by the Cabinet Office shows that the government maintained status quo on economic prospects for straight third month.