EUR/JPY flattens around 163.00, Japan Q1 GDP contracts by 0.2%

• EUR/JPY recoups losses and flattens around 163.00, while Japan's Q1 GDP data came in weaker than expected.
• BoJ's Nakamura warns of downside economic risks due to the fallout of tariffs by the US.
• ECB's Kazaks expects two more interest rate cuts, sees the Deposit Facility rate declining to 1.75%.

The EUR/JPY pair trades flat around 163.00 after recovering its initial losses during North American trading hours on Friday. The cross rebounds as the Japanese Yen (JPY) faces slight selling pressure, following the release of the Japan Q1 Gross Domestic Product (GDP) data.

The Japanese Cabinet Office reported that the economy contracted by 0.2% in the first quarter of the year, faster than expectations of 0.1%. On an annualized basis, the economy shrank at a faster pace of 0.7%, compared to estimates of a 0.2% decline. In the first quarter of 2024, the economy rose at a robust pace of 2.2%.

Weak GDP data is expected to discourage the Bank of Japan (BoJ) from raising interest rates in the future. Earlier in the day, BoJ board member Toyoaki Nakamura warned of growing downside risks to the economy due to the fallout of tariffs by United States (US) President Donald Trump, which have prompted global economic uncertainty.

Meanwhile, the Euro (EUR) trades calmly while investors ignore firm expectations that the European Central Bank (ECB) will cut interest rates again in the June policy meeting. ECB officials have argued in favor of reducing interest rates further due to downside Eurozone economic risks and confidence that the disinflation trend is intact.

During European trading hours, ECB Governing Council member Martins Kazaks stated that there may still be a "couple" of reductions in the deposit rate this year from its current level of 2.25%, Bloomberg reported.