Euro edges higher vs Yen as German data, ECB hike expectations lend support

• EUR/JPY trades around 185.80 on Monday, posting a modest 0.05% daily gain.
• German Retail Sales declined less than expected in April, providing limited support to the Euro.
• Expectations for a European Central Bank rate hike in June continue to underpin the single currency.

EUR/JPY trades around 185.80 at the time of writing on Monday, up a modest 0.05% on the day. The pair is receiving moderate support following the release of German Retail Sales data, while expectations of further monetary tightening by the European Central Bank (ECB) continue to boost demand for the Euro (EUR).

Data released by Destatis showed that German Retail Sales fell by 0.3% MoM in April, following a 0.3% decline in March that was revised higher. However, the figure came in slightly better than market expectations for a 0.4% decrease. On an annual basis, Retail Sales also declined by 0.3%, highlighting the persistent weakness in consumer spending within the Eurozone’s largest economy.

Additional data released on Monday showed that the HCOB Eurozone Manufacturing Purchasing Managers Index (PMI) fell to 51.6 in May 2026 from April’s near four-year high of 52.2. However, the final reading came in slightly above the preliminary estimate of 51.4, indicating that manufacturing activity continues to expand across the Eurozone despite a moderation in momentum. 

Despite the slightly better-than-expected reading, the inflation outlook remains a key focus for investors. Flash estimates for May, which were released last week, showed that price pressures eased in Germany but accelerated in France, Italy and Spain. Inflation in all four countries remains well above the European Central Bank’s (ECB) 2% target, reinforcing expectations for a 25-basis-point interest rate increase at the June 11 meeting.

The latest European Central Bank (ECB) consumer expectations survey also showed that one-year inflation expectations remained unchanged at 4%, while three-year expectations eased to 2.9% from 3% previously. Five-year expectations held steady at 2.4%, suggesting that households continue to anticipate elevated inflation pressures in the near term.

In Japan, the final S&P Global Manufacturing PMI was confirmed at 54.5 in May, down slightly from April’s peak of 55.1 but still firmly in expansion territory. However, Japanese corporate Capital Spending was flat in the first quarter after growing 6.5% YoY in the final quarter of 2025, pointing to a slowdown in business investment momentum.

Comments from Bank of Japan (BoJ) officials continue to support expectations for monetary policy normalization. The Summary of Opinions from the April meeting showed that a majority of policymakers favor a rate hike in the near term while warning about persistent inflation risks.

This contrast between a European Central Bank (ECB) that is expected to raise rates as soon as this month and a Bank of Japan (BoJ) that remains more cautious in its normalization process continues to support EUR/JPY at elevated levels, although gains remain limited at the start of the week.