EUR/JPY rises ahead of Japan’s CPI, German Retail Sales data
- EUR/JPY advances with Japan’s inflation data in focus.
- Germany prepares for the release of Friday’s Retail Sales data, which is due on Friday.
- Both data points may provide an additional catalyst as traders remain focused on the ECB and BoJ’s next move
The Euro (EUR) is strengthening against the safe-haven Japanese Yen (JPY) on Thursday, ahead of Japan’s upcoming inflation data and Germany’s Retail Sales data. At the time of writing, the pair trades at 163.83, up 0.17% in the day.
The focus in Japan on Thursday is on the upcoming Tokyo Consumer Price Index (CPI) release at 23:30 GMT, which will shed light on the pace of inflation. In April, inflation rose to 3.5% YoY, above the Bank of Japan’s (BoJ) 2% target.
Meanwhile, CPI excluding Food and Energy came in at 2%. With the Bank of Japan recently adopting a more hawkish tone, a higher print may raise the potential for the BoJ to shift away from its accommodative monetary policy stance.
In Europe, the release of Retail Sales data from Germany on Friday will likely provide an additional catalyst for the Euro. Europe’s largest economy is expected to show that sales declined to 1.8% YoY in April, down from 2.2% in March.
If retail sales come in softer than expected, this may solidify expectations that the European Central Bank (ECB) will cut rates in June, with the potential for additional easing at the July meeting. Meanwhile, a Reuters poll recently revealed that 70% of economists anticipate that the European Central Bank will pause its easing cycle after June. If the data releases deviate from expectations, EUR/JPY may face additional pressure.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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