EUR/JPY trades higher after dovish comments from new Prime Minister Ishiba

• EUR/JPY is trading higher after Ishiba’s comments suggest he could pressure the BoJ to keep interest rates low.
• Gains for the pair may be capped by slower inflation data from Germany, the eurozone’s main economy.
• The data adds to woes for the German economy, triggered by a second profit warning from carmaker Volkswagen.

EUR/JPY is trading more than half a percent higher on Monday at 159.60s after dovish comments from Japan’s new Prime Minister Shigeru Ishiba gave the impression he would steer monetary policy to remain accommodative due to economic conditions . His statement suggests he could put pressure on the Bank of Japan (BoJ) to keep interest rates at their current record lows, despite the bank’s policy trajectory pointing higher.

This causes the Euro (EUR) to appreciate over the Japanese Yen (JPY) and EUR/JPY to rise. However, the pair’s gains will be limited by negative data from the bloc’s biggest economy, Germany, which points to an economic slowdown. Germany’s consumer price index (CPI) fell below estimates on Monday after rising 1.6 percent annually in September from 1.9 percent in August, Destatis reported.

Germany’s Harmonized Index of Consumer Prices, the European Central Bank’s preferred inflation gauge, also came in below expectations, rising 1.8% year-on-year, down from 2.0% in August and below market expectations of 1.9%. The disinflationary data makes it more likely that the European Central Bank (ECB) will cut interest rates more aggressively, leading to a weaker euro, as lower interest rates tend to encourage capital outflows to places where they can earn higher returns .

The news comes after Volkswagen, Germany’s biggest carmaker, issued another profit warning on Friday due to increased competition, falling sales in the Far East and a conflict with labor unions. The carmaker cut revenue, profit and cash flow expectations due to falling demand for its cars and expects to deliver fewer vehicles this year than in 2023 – its fourth annual sales decline in five years. It is the company’s second profit warning in three months and adds to the general malaise surrounding the German economy.