EUR/JPY returns to near 162.50, recovers losses inspired by BoJ Ueda.

• EUR/JPY bounces back from the intraday low of 161.20 and recovers its entire intraday loss.
• BoJ Ueda tipped for more interest rate hikes this year as price pressures remain steady.
• The ECB is expected to cut two more interest rates this year.

EUR/JPY fully recovers its intraday losses and moves to near 162.50 in the European session on Friday. The cross fell earlier after brutal guidance from Bank of Japan (BoJ) Governor Kazuo Ueda strengthened the Japanese yen (JPY).

Kazuo Ueda said during a parliamentary hearing that short-term interest rates should be raised again if inflationary pressures remain constant. Market participants also expect the BoJ to tighten monetary policy further, given Japan’s strong economic outlook and price pressures well above the bank’s 2% target.

Meanwhile, Japan’s national consumer price index (CPI), excluding fresh food, rose in July. Data released in the Asian session on Friday showed core inflation rose 2.7 percent, as expected, from 2.6 percent in June.

On the eurozone front, growing speculation from the European Central Bank (ECB) about more rate cuts this year could weigh on the euro (EUR). The ECB is expected to resume its policy easing cycle in September and cut another interest rate cut in the final quarter of this year. Market expectations for an ECB interest rate cut were driven by the uncertain economic outlook for the Eurozone and slowing wage pressures.

The Eurozone HCOB Flash PMI for August showed that global economic activity picked up because of the Paris Olympics, which is a one-off event and not a structural change. The report also pointed to a sharp contraction in the German economy amid vulnerable overseas demand.

Meanwhile, negotiated eurozone wage rates in Q2 eased fears that inflation would remain persistent. The measure of wage growth rose 3.55%, slower than the 4.74% it came in the first quarter of this year.