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EUR/JPY continues to play on inflation expectations

FXStreet (London) - EUR/JPY is currently trading at JPY138.7185 after hitting two-month highs above JPY139.2 on Friday.

The recent euro gains have broken a six-month down trend in the pair on diverging inflation expectations.
On Thursday the European Central Bank will roll out the first round of its targeted long-term refinancing operations (TLTRO) with an auction allowing banks access to cheap four-year loans. With Eurozone inflation numbers set to be released tomorrow, and despite the drastic measures being put in place by the ECB, there remains doubt that the central bank can achieve its 2 percent inflation target. After having gone through a period of deleveraging, the six planned TLTROs in conjunction with the ECB's purchase of asset-backed securities are expected to take the size of the ECB's balance sheet back to 2012 levels at around EUR3 trillion.

Japan inflation "on target" - Kuroda

While the statement contains an element of jawboning, speaking at an event in Osaka overnight, Bank of Japan governor Haruhiko Kuroda said that he expects Japan to reach its inflation target after aggressive monetary policy. “The year-on-year rate of increase in the CPI, which is likely to be around 1.25 percent for some time, is expected to subsequently follow an uptrend again from the second half of this fiscal year and reach about 2 percent around the middle of the current projection period from fiscal 2014 through 2016” said the central bank governor.

The pair is currently trading at JPY138.7185, just over its opening of JPY138.6930 after a choppy day of trading.

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