EUR/JPY holds losses near 163.50 following Germany’s HICP data

• EUR/JPY remained tepid after the German Harmonized Index of Consumer Prices data released on Tuesday.
• German HICP increased by 2.4% YoY in October, up from the September’s 1.8% reading.
• Japan's Finance Minister Katsunobu Kato cautioned to take appropriate action to manage fluctuations in the FX market.

EUR/JPY has offered its recent gains from the previous session, falling to near 163.50 during the European trading hours on Tuesday. The Euro faces downward pressure as expectations grow for the European Central Bank (ECB) to adopt aggressive rate cuts. The ECB is expected to lower rates by 25 basis points in December, with market projections indicating a potential decline to 2% by June.

On the data front, Germany’s Consumer Price Index (CPI) rose to 2.0% year-over-year in October, up from September’s three-and-a-half-year low of 1.6%, marking the highest inflation rate in three months. Additionally, the Harmonized Index of Consumer Prices (HICP) increased by 2.4% YoY, up from the previous 1.8% reading, and climbed 0.4% month-over-month after a 0.1% decline in September.

On the political side, German Chancellor Olaf Scholz has expressed a willingness to move the parliamentary confidence vote forward by several weeks, possibly scheduling it before Christmas. This shift could pave the way for an early election.

The Japanese Yen (JPY) found support after new verbal interventions from Japanese officials. Finance Minister Katsunobu Kato warned that authorities are prepared to take “appropriate action” to manage sharp fluctuations in the foreign exchange market.

However, the JPY’s upward momentum is capped by uncertainty surrounding the Bank of Japan’s (BoJ) rate-hike plans. Japan’s fragile minority government is likely to complicate any moves toward tightening monetary policy. Additionally, the BoJ’s Summary of Opinions from its October meeting indicated a division among policymakers regarding further rate hikes.