The battle to be the funding currency in this cycle is over.
Japanese inflation remains at rock bottom levels and the BOJ is nowhere near hiking rates. Meanwhile, ECB President Lagarde today flagged a coming regime shift higher in rates.
That divergence is fuel for EUR/JPY, which has soared 190 pips today to 131.24.
The move though looks out-of-gas for today after it ran into the January high of 131.60 (high so far of 131.50). That's a big one-day move so some consolidation here, if not a modest retracement, is to be expected.
Going forward though, the euro is showing life on a few fronts and European bond yields are closing the gap with the US.
The spot to watch from here is wages. Lagarde emphasized that there isn't the same tightness in the labour market as in the UK but wage grow is slow to show up and stubborn once it arrives. Gas prices remain high and that's feeding through to fertilizer, food and metals. Workers aren't going to tolerate a decline in real wages forever.
In the bigger picture, the pair is still right in the middle of the range but with European borrowing costs rising and today's developments, there's a good argument for an eventual break higher.
