EUR/JPY soars to 157.00 as Eurozone Q2 expands, Yen takes bullet as BoJ tweaks YCC

• EUR/JPY rises to near 157.00 as upbeat Eurozone data warrants more interest rate hikes from the ECB.
• Monthly Eurozone inflation deflated by 0.1% in July while GDP came out of contraction and expanded by 0.3% in Q2.
• The Japanese Yen has been hit hard despite BoJ allowing more flexibility to the YCC.

The EUR/JPY pair climbs swiftly above the crucial resistance of 157.00 in the European session amid multiple tailwinds. Eurozone preliminary Harmonized Index of Consumer Prices (HICP) decelerated in July and Gross Domestic Product (GDP) performance in Q2 remained stellar. While the Japanese Yen has been hit after the Bank of Japan (BoJ) provided more flexibility to the Yield Curve Control (YCC).

Eurostat reported that headline and core inflation deflated at a pace of 0.1% in July. On an annualized basis, headline inflation landed at 5.3% higher than expectations of 5.2% but remained below June’s print of 5.5%. Core inflation that excludes volatile oil and food prices remained unchanged at 5.5% and higher than the forecast of 5.5%.

It seems that Eurozone inflation is turning out sticky and warranting one more interest-rate hike by the European Central Bank (ECB) in its September monetary policy.

In addition to persistent inflationary pressures, the catalyst that is supporting the continuation of the rate-tightening cycle by the ECB is the upbeat April-June GDP data. The eurozone economy came out of contraction and expanded by 0.3% in the second quarter while the market forecasted a marginal growth of 0.1%.

ECB President Christine Lagarde commented on July 27 while delivering monetary policy commentary that the central bank will remain data-dependent ahead.

On the Japanese Yen front, Asian currency takes a bullet despite BoJ delivering a message of exiting from the ultra-dovish policy by allowing more flexibility to the YCC. Japanese Government Bonds (JGBs) deviation target is expected to remain at +-1%, which would reduce bond buying operations by the central bank.