Euro edges down against Japanese Yen ahead of Eurozone HICP data

• EUR/JPY ticks lower to near 185.50 in the countdown to the Eurozone HICP data for August.
• Inflationary pressures accelerated in Germany, France and Spain in August.
• JGB Yields surge to multi-decade high amid firm hawkish BoJ expectations.

The Euro (EUR) trades subduedly at around 185.50 against the Japanese Yen (JPY) during the European trading session on Tuesday. The major currency is mildly under pressure ahead of the Eurozone flash Harmonized Index of Consumer Prices (HICP) data for August, which will be published at 09:00 GMT.

Ahead of the Eurozone inflation data, HICP figures from Germany, France and Spain showed that price pressures accelerated.

Eurostat is expected to show that the headline HICP growth remained stronger at 3.3% Year-on-Year (YoY) against 2.9% in July. The core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – grew at a steady pace of 2.5% YoY.

The Eurozone HICP data will likely have a significant impact of European Central Bank (ECB) interest rate expectations. For now, market experts see the ECB raising interest rates in the policy meeting this month.

ECB seen delivering insurance hike even as second-round pressures stay muted

ING strategists argue that, “despite little evidence of ongoing second-round effects, the European Central Bank is almost guaranteed to hike rates again next week.” In their view, this move still fits the “insurance” hike classification, aimed at reinforcing the disinflation narrative rather than responding to a renewed inflation surge. However, they caution that “further tightening from there – which is widely priced in by markets – would instead imply that the ECB sees restrictive policy as necessary, a much bolder move unless data shows a core inflation uptrend.”

On the Tokyo front, surging Japan Government Bond Yields provide cushion to the Japanese Yen.

Japan bond yields hit milestone as markets ramp up BoJ hike bets

Analysts at Danske Bank highlight that in Japan, attention has centred on the 10-year government bond yield, which "rose to 3% for the first time since 1996," a move they link to comments from US Treasury Secretary Scott Bessent suggesting the BoJ should "raise rates more aggressively." Danske Bank notes that markets were already "pricing a high likelihood of a 25bp hike to 1.25% at the September meeting," but Bessent’s remarks have "added to the pressure," with investors now "pricing a rate hike by 70%."