The Euro paused near a 12-week high against the Japanese Yen on Friday, consolidating modest losses as fresh economic data from both the Eurozone and Japan failed to elicit a strong market reaction. At the time of writing, EUR/JPY traded around 186.30, after reaching a peak of 186.67 on Thursday [1].
Eurozone economic data showed notable improvement, with the preliminary HCOB Composite Purchasing Managers’ Index (PMI) rising to a five-month high of 51.9 in July, surpassing the market forecast of 50.2 and up from 50.0 in June. The Services PMI climbed to 51.6 from 49.4, and the Manufacturing PMI increased to 52.0 from 51.4, both reaching multi-month highs [1]. These stronger PMI figures reinforced perceptions of economic resilience in the Eurozone, despite ongoing tensions in the Middle East, and supported expectations that the European Central Bank (ECB) can maintain a restrictive policy stance [1].
On Thursday, the ECB kept all three key interest rates unchanged after a 25 basis point hike in June. The central bank reiterated that future policy decisions will depend on its assessment of the inflation outlook and associated risks, with traders fully pricing in another rate increase at the September meeting [1]. ECB policymaker Gediminas Šimkus stated that "inflation is seen higher than target for a long time" and that the probability of a rate hike remains higher than a hold, though he noted policymakers do not see second-round effects of higher inflation and will have more data by September [1].
In Japan, the Yen remained broadly weak, with USD/JPY pinned at a 40-year high, keeping traders alert to potential intervention. Japan’s headline National Consumer Price Index (CPI) rose 1.7% year-over-year in June, up from 1.5% in May [1]. According to Reuters, citing three sources, the Bank of Japan (BoJ) is expected to keep rates unchanged next week while warning that inflation could exceed its 2% target, though policymakers believe the risk of an immediate oil-driven inflation shock has diminished since April [1].
CONCLUSION
The Euro's resilience, supported by strong PMI data and a hawkish ECB outlook, has kept it near multi-month highs against the Yen. Meanwhile, the Yen remains under pressure due to weak fundamentals and expectations of unchanged BoJ policy. Market participants are closely watching upcoming central bank decisions and inflation data for further direction.