EUR/JPY eases from YTD peak, up a little around 164.30 ahead of Eurozone CPI

• EUR/JPY struggles to capitalize on modest Asian session gains to a fresh YTD peak.
• ECB rate cut bets hold back the EUR bulls from placing fresh bets and cap the cross.
• The BoJ’s dovish pause could undermine the JPY and lend support to spot prices.

The EUR/JPY cross builds on the previous day's blowout rally following the Bank of Japan's (BoJ) policy decision and touches a fresh year-to-date top, around the 164.60-164.65 region during the Asian session on Friday. Spot prices, however, retreat a few pips from the daily swing high and currently trade with modest intraday gains, around the 164.30 area, as bulls turn cautious ahead of the crucial Eurozone consumer inflation figures.

The preliminary version is expected to show that the Eurozone Harmonized Index of Consumer Prices (HICP) eased to the 2.1% YoY rate in April from 2.2% in the previous month. However, core inflation, which excludes volatile food and energy prices, is seen rising to 2.5% from 2.4% in March. Against the backdrop of a fall in German inflation to its lowest level in seven months, softer Eurozone inflation figures will back the case for another interest rate cut by the ECB in June. This, in turn, could exert some downward pressure on the shared currency.

Heading into the key data risk, traders seem reluctant to place fresh bullish bets, which, in turn, is seen acting as a headwind for the EUR/JPY cross. However, a modest US Dollar (USD) downtick is seen offering some support to the Euro. Apart from this, the BoJ's dovish pause on Thursday contributes to the Japanese Yen's (JPY) relative underperformance and assists spot prices to trade with a positive bias. The BoJ, as was widely anticipated, decided to keep short-term interest rates steady at 0.5% at the end of a two-day policy meeting on May 1.

The central bank, however, struck a cautious tone by slashing its growth and inflation forecasts. In fact, the BoJ expects the Japanese economy to grow 0.5% in the current fiscal year versus its earlier projection of 1.1% in January and revised down its core CPI forecast from 2.4% to 2.2% for fiscal 2025. This forced investors to scale back their bets for the next BoJ interest rate hike in June or July. This, along with signs of easing US-China trade tensions, might continue to undermine the safe-haven JPY and lend support to the EUR/JPY cross.