EUR/JPY declines amid mixed Eurozone data, Japan's fiscal uncertainties

• EUR/JPY edges lower on Friday as Eurozone economic data comes out mixed.
• Investors await Germany’s preliminary inflation report, while earlier consumption and price figures show a heterogeneous trend.
• The Japanese Yen remains supported by concerns over Japan’s fiscal outlook, despite stronger-than-expected inflation in Tokyo.

EUR/JPY trades slightly lower on Friday, around 180.85, down 0.20% at the time of writing. The pair extends its corrective move, pressured by mixed European statistics and renewed interest in the Japanese Yen (JPY), even as uncertainty around Japan’s monetary policy persists.

In the Eurozone, uneven data weigh on the Euro (EUR). Retail Sales for October unexpectedly declined, while the Import Price Index came in above forecasts. In France, third-quarter Gross Domestic Product (GDP) held steady at 0.5%, confirming the preliminary estimate. In contrast, the annual Consumer Price Index (CPI) remained unchanged at 0.8%, contrary to expectations of stronger price pressures.

In Germany, data released earlier on Friday show that consumption remains fragile: Retail Sales fell 0.3% in October, while economists were expecting a 0.2% increase. Year-on-year, sales rose 0.9%, slightly above September’s revised figure. The Import Price Index contracted 1.4% YoY, below expectations, and the monthly reading came in at 0.2%. Investors now await the preliminary Harmonized Index of Consumer Prices (HICP) for November, expected to rise modestly to 2.4% YoY.

In Japan, the Japanese Yen still struggles to attract strong buying interest. Uncertainty surrounding the Bank of Japan (BoJ) policy path clouds the outlook, even though fresh Tokyo data strengthen the case for gradual tightening.

Inflation in Japan’s capital rose more than expected. The Consumer Price Index (CPI) climbed 2.7% YoY in November, while the core measure excluding fresh food and energy held at 2.8%. These figures confirm persistent price pressures and support expectations for policy normalization.

However, growing concerns about Japan’s worsening fiscal situation limit the Japanese Yen’s upside. Reports of increased issuance of government Bonds to fund Prime Minister Sanae Takaichi’s stimulus package pushed Japanese government Bond yields higher, reviving doubts over the country’s fiscal sustainability.

At the same time, improving market sentiment, supported by expectations of Federal Reserve (Fed) rate cuts and hopes of progress toward a Russia-Ukraine peace agreement, also reduces safe-haven demand for the JPY.