EUR/JPY gains traction above 163.50 amid risk-on sentiment 

• EUR/JPY edges higher to around 163.80 in Wednesday's early European session, adding 0.10% on the day. 
• BoJ's Ueda said he won't push for higher interest rates unless the economy is strong enough to take it. 
• Eurozone inflation declines below the target, supporting rate cut bets. 

The EUR/JPY cross gains ground to near 163.80 during the early European session on Wednesday. The Japanese Yen (JPY) weakens against the Euro (EUR) due to the cautious remarks from the Bank of Japan (BoJ) Governor Kazuo Ueda and the improved risk sentiment. The European Central Bank (ECB) interest rate decision will be in the spotlight on Thursday.

BoJ Governor Kazuo said on Tuesday that uncertainties over overseas trade policies and economic and price situations remain extremely high, adding that there is no preset plan for rate hikes and that he won't push for higher interest rates unless the economy is strong enough to take it. 

The cautious remarks fueled the expectation that the next interest rate hike won't come soon, weighing on the JPY. According to a Reuters poll, most economists expect the BoJ to hold rates steady through September, with a small majority forecasting a hike by year-end.

On the other hand, the Eurozone inflation eased below the ECB's target in May. Data released by Eurostat on Tuesday showed that the Harmonized Index of Consumer Prices (HICP) inflation eased to 1.9% YoY in May from 2.2% in April. This figure came in softer than the 2.0% expected. Meanwhile, core HICP inflation declined to 2.3% YoY in May from 2.8% in the previous reading, below the consensus of 2.5%. 

This report has triggered expectations for further ECB policy easing and might drag the shared currency lower against the JPY. Markets have fully priced in a 25 basis points (bps) reduction to the ECB's deposit facility rate on Thursday. The cut would bring the deposit facility rate to 2.0%, its lowest level since January 2023.