Forex Market: EUR/JPY plummets to three-week lows after upbeat Japanese data, ECB easing speculation

The yen advanced to the strongest level in more than three weeks against the euro, after official data showed the Japanese unemployment rate fell to the lowest in more than six years last month, while the availability of jobs improved to the highest since 2007, indicating that the labor market is gaining momentum. Meanwhile, demand for the 18-nation common currency continued to be pressured amid speculation the European Central Bank may signal additional monetary stimulus next week to bolster economic growth.

EUR/JPY touched a session low at 139.97 at 08:16 GMT, after which the pair consolidated at 140.15, losing 0.2% for the day. Support was likely to be received at March 4th low, 139.31, while resistance was to be met at March 27th high, 141.04.

A government report showed today that the Japanese jobless rate declined to 3.6% last month, the lowest in more than six years, from 3.7% in January. The jobs-to-applicants ratio also increased to 1.05 last month from 1.04 in January, in line with analysts estimates and matching the highest since August 2007. This indicates that there were 105 job offers for every 100 job seekers.

The number of unemployed people declined in February for the 45th consecutive month, dropping by 450 000 from a year ago to 2.32 million people, data from the report revealed. All these data points, added to signs of a robust labor market, which in turn will lead to higher consumer spending.

A separate report showed that Japanese retail sales rose at an annualized rate of 3.6% last month, exceeding expectations for a 3.2% gain and following a 4.4% advance in January.

Moreover, consumer price inflation in Tokyo surged 1.3% in March from a year ago, beating projections for a 1.2% rise and following 1.1% gain in the prior month.

Core consumer price inflation, which excludes fresh food, also advanced by 1% this month from the previous year, more than the 0.9% increase predicted by analysts and after a 0.9% gain in the previous month.

Meanwhile, demand for the 18-nation common currency remained under pressure amid speculation the European Central Bank may signal additional monetary stimulus next week, to bolster the economic recovery.

Yesterday, ECB Governing Council member Luis Maria Linde reiterated the words of few of her colleagues, saying central banks policy makers haven’t ruled out introducing further stimulus to spur economic growth in the euro area as they take the risk of deflation very seriously.

The governor of the Bundesbank and member of the ECB Governing Council, Jens Weidmann commented on March 25, the ECB may use negative interest rates to counter further appreciation of the 18-nation common currency and added that policy makers have not ruled out introducing new stimulus to fight against deflation. Stimulus programs tend to weaken a currency.

ECB policy makers, who lowered the main interest rate to a record-low 0.25% in November, are set to reconvene on April 3rd.

“Whether and how the ECB will address euro-zone deflation or disinflation risks in the months ahead will be a key driver for the euro,” Athanasios Vamvakidis, head of Group-of-10 foreign-exchange strategy at Bank of America Merrill Lynch in London, wrote in a research note, cited by Bloomberg. “The ECB could be forced into unconventional policies this year, which could be a game changer for the euro.”

Earlier this week, reports showed that the business climate and manufacturing in the largest euro area economy, Germany declined. At the same time, consumer prices grew at an annualized rate of 0.8% last month, much below the ECB inflation target of just below 2%, a report by Eurostat showed.