EUR/JPY rises to near 173.00 due to widening yield differentials, HCOB PMI eyed

• EUR/JPY appreciates ahead of HCOB Purchasing Managers’ Index data from Eurozone and Germany.
• Japan’s 30-year government bond yield hovered around 3.25%, remaining near record highs.
• French 30-year yield sits at 4.5%, highest since 2009, while German 30-year yield trade at 3.41%, its peak since 2011.

EUR/JPY continues its winning streak for the fifth-consecutive day, trading around 172.80 during the Asian hours on Wednesday. HCOB Purchasing Managers’ Index (PMI) data from Eurozone and Germany will be eyed later in the day.

The EUR/JPY currency cross appreciates as the Japanese Yen (JPY) struggles due to capital outflow from Japan, driven by rising yield differentials between Japanese government bond (JGB) yields and European bond yields.

Japan’s 30-year government bond yield holds near 3.25% on Wednesday, staying close to all-time highs. The JGB yields appreciates due to rising political uncertainty in Japan. The Secretary-General of the Liberal Democratic Party (LDP) Hiroshi Moriyama, a close ally of Prime Minister Shigeru Ishiba, said he would resign amid intensifying concerns over Ishiba’s leadership as pressure builds after the election loss.

However, European government bond yields rose amid rising fiscal concerns. French 30-year yield stand at 4.5%, highest since 2009 and German 30-year yields stand at 3.41%, highest since 2011, at the time of writing.

Concerns over France’s debt burden are a central factor behind Prime Minister François Bayrou’s confidence vote scheduled for next week. Germany’s medium-term financial plan projects about €500 billion in net new borrowing through 2029 to support higher infrastructure and defense spending.

On data front, Japan’s Jibun Bank Services PMI came in at 53.1 in August, down from July’s 53.6 but surpassing the market expectations of 52.7 reading. It marked the fifth consecutive month of growth in the services sector, driven primarily by the sharpest increase in new orders since February.

Meanwhile, Jibun Bank Composite PMI climbed to 52.0 in August, from 51.6 prior and came above the flash estimate of 51.9. The reading signaled the fifth consecutive month of private sector growth and the strongest pace since February.

On Tuesday, Bank of Japan (BoJ) Deputy Governor Ryozo Himino said that the central bank should keep raising rates gradually, while cautioning that elevated global risks leave little room for aggressive tightening.