The EUR/JPY currency pair softened to near 185.50, trading with mild losses around 185.60 during the early European session on Monday, as the Japanese Yen edged higher against the Euro following the release of Japan's July inflation data [1]. Japan’s headline National Consumer Price Index (CPI) inflation rose to 1.9% year-on-year in July from 1.6% in June, marking its highest level so far this year, according to the Statistics Bureau [1]. Core CPI, which includes energy-related items but excludes volatile fresh food prices, increased to 1.8% year-on-year in July from 1.6% previously [1]. This uptick in inflation has strengthened the case for another interest rate hike by the Bank of Japan (BoJ) [1].
Market participants have responded to the data by pricing in a roughly 82% chance of a September rate increase, a significant jump from about 23% immediately before the BoJ’s July policy meeting, as reported by Bloomberg [1]. Traders are now awaiting a speech by BoJ Deputy Governor Ryozo Himino on Thursday, which could provide further insight into the pace of future rate hikes. Commonwealth Bank of Australia strategist Joe Capurso noted that Himino may signal the BoJ is moving closer to another interest rate hike [1].
Analysts at Societe Generale commented that the latest inflation figures support the BoJ’s current normalization path and their call for a September hike, but do not warrant a faster tightening pace than what is already priced in by the market. Their note, titled “On Our Minds: BoJ call change: quarterly rate hikes until next June,” reiterates that the data backs the existing trajectory for gradual rate increases [1].
From a technical perspective, EUR/JPY maintains a constructive bias above the 100-day simple moving average (SMA) and the Bollinger middle band, with the Relative Strength Index (RSI) at 58.18 indicating positive momentum without signaling overbought conditions [1]. Initial support is seen at the 100-day SMA around 185.15, with further support at the Bollinger middle band near 184.00 and the lower band at 180.60. Resistance is located at the Bollinger upper band at 187.35, and a sustained break above this level could signal a continuation of the broader uptrend [1].
CONCLUSION
Japan’s July inflation data has increased expectations for a Bank of Japan rate hike in September, strengthening the Japanese Yen against the Euro. While analysts see the normalization path intact, traders are closely watching upcoming BoJ commentary for further signals. The EUR/JPY pair remains technically constructive, with market sentiment moderately positive as rate hike prospects support the JPY.