EUR/JPY holds losses below 169.00 despite hot Eurozone HICP inflation data

• EUR/JPY shows little reaction after the Eurozone Harmonized Index of Consumer Prices data is released.
• The Eurozone HICP rose by 2% YoY in June as expected, while monthly inflation increased to 0.3%.
• The Japanese Yen strengthened as the BoJ Tankan Survey showed improved business conditions among large manufacturers.

EUR/JPY retreats after registering a 12-month high of 169.86, marked on Monday, trading around 168.80 during the European hours on Tuesday. The pair remains subdued following the release of the hot Eurozone Harmonized Index of Consumer Prices (HICP) data.

The Eurozone HICP rose 2% year-over-year in June as expected, up from May’s 1.9% increase. The monthly HICP inflation came in at 0.3% in June, against May’s 0%. Meanwhile, the annual core HICP climbed 2.3% as expected, while monthly core HICP advanced 0.4%, following a 0% readout in May.

President Christine Lagarde said during the European Central Bank (ECB) Forum on Central Banking in Sintra, Portugal, on Tuesday, that uncertainty remains a key feature of the global economy, likely making inflation more volatile and requiring the Eurozone central bank to act more forcefully to keep prices around its target.

The ECB introduced a revised strategy that major deviations from its target in either direction would require "appropriately forceful or persistent" policy action to steer inflation back to 2%. Explaining this shift, President Lagarde argued that the global environment had changed fundamentally in the post-pandemic years, as firms changed prices more quickly in this new period of uncertainty and supply shocks, per Reuters.

ECB policymaker Pierre Wunsch said in an interview on the sidelines of the ECB Forum that “if we had to move, it would be down.” Moreover, ECB policymaker Gediminas Šimkus noted: "I don't know if we'll have all the information we need by September, but I remain open to every possibility.” "I believe a move, if any, is more likely towards the end of the year," Šimkus added.

The EUR/JPY cross depreciated as the Japanese Yen (JPY) gains ground, as the Bank of Japan's (BoJ) Tankan Survey showed that business conditions at large manufacturers improved in Japan for the first time in two quarters during the April-June period. The Tankan Large Manufacturing Index rose to 13.0 in the second quarter from 12.0 in Q1. This reading came in above the market consensus of 10.0. Moreover, the large Manufacturing Outlook for the second quarter arrived at 12.0 versus 12.0 prior. This figure came in stronger than the 9.0 expected.