Euro falls against Japanese Yen ahead of German inflation data

• The Euro trades lower against the Japanese Yen to near 185.20 ahead of the German HICP data for August.
• German HICP is seen higher at 3% YoY from 2.8% in July.
• The BoJ is highly anticipated to raise interest rates in September.

The Euro (EUR) is down 0.1% to near 185.20 against the Japanese Yen (JPY) during the European trading session on Monday. The cross faces pressure as the Japanese Yen (JPY) outperforms its peers amid fears that the Bak of Japan (BoJ) will raise interest rates in the September policy meeting.

Market leans toward September BoJ hike

Commerzbank notes that market expectations have moved decisively in favour of near-term tightening by the BoJ, with “the implied probability of an interest rate hike in September” having “recently risen again and now” standing “at around 84%.” However, the bank stresses that “only the Bank of Japan has yet to make any clear statements regarding the timing of its next move,” adding that Deputy Governor Himino “preferred in his speech yesterday not to get specific just yet,” underscoring the persistent gap between market pricing and official communication.

Meanwhile, the Euro trades with caution ahead of the German Harmonized Index of Consumer Prices (HICP) data for August, which will be published at 12:00 GMT.

Preliminary German HICP data is expected to arrive higher at 3% Year-on-Year (YoY) from 2.8% in July. Signs of German inflationary pressures accelerating could prompt expectations for a European Central Bank (ECB) interest rate hike next month.

Financial experts seem confident that the ECB will raise interest rates in the September meeting.

Analysts at Danske Bank note that “the market is now nearly fully priced for a 25bp rate hike at the September meeting,” reflecting still-elevated inflation expectations despite the recent improvement in Euro area sentiment. However, they argue that the latest data — including energy-driven headline gains in French and Spanish HICP alongside muted core momentum and softer French GDP — are “marginally dovish versus market pricing.” In this context, Danske Bank highlights that “the decline in firms' selling price expectations supports our view that the September meeting will be the final hike for now,” and they expect the ECB to deliver only one additional 25bp increase before pausing.

On Tuesday, investors will focus on the Eurozone HICP data for July.