EUR/JPY REBOUNDS FROM 136.50 ON EXPECTATIONS OF HAWKISH GUIDANCE IN THE ECB’S MONETARY POLICY

• EUR/JPY has grabbed bids near 136.50 ahead of the ECB’s interest rate decision.
• Hawkish guidance is highly expected by the market participants.
• BOJ’s Kuroda stressed the continuation of massive stimulus for restoration of the economy to pre-Covid-19 levels.

The EUR/JPY pair has bounced back sharply after a minor pullback to near 136.50. The cross has remained balanced in April in a tad wider range of 134.30-137.30. The asset is likely to remain uncertain as the market participants are awaiting the announcement of interest rate policy by the European Central Bank (ECB) on Thursday.

This will be the second monetary policy announcement by the ECB after Russia’s invasion of Ukraine, which is likely to remain unchanged as per the market consensus. Considering the regional imbalance amid the Russia-Ukraine war in the Eurozone, the ECB will maintain the status quo but hawkish guidance for the remaining year is on the cards. The Ukraine crisis has bolstered the odds of stagflation in the Eurozone backed by higher energy bills and supply chain bottlenecks. Also, the expectation of the European Union (EU) embargo on Russian oil is gaining momentum.

Meanwhile, Bank of Japan (BOJ)’s Governor Haruhiko Kuroda in his speech on Wednesday has pinned the soaring inflation and falling household real income. The BOJ’s Kuroda dictated that the impact of the Covid-19 and the Ukraine crisis is hurting their economy. Higher energy and commodity prices are reducing households’ income and corporate profits. BOJ’s Kuroda stressed over maintaining the BOJ’s massive stimulus to cushion the economy, which is yet to recover to pre-pandemic levels.