EUR/JPY surged to new YTD highs on high HICP in Germany; EU’s inflation in focus

• EUR/JPY trades at 159.67, almost flat but off new YTD highs, as German HICP data beats estimates, fueling expectations of higher Eurozone rates.
• ECB’s Christine Lagarde’s emphasis on restrictive rates and rising Bund yields underpin the Euro, while BoJ’s loose policy pressures the Yen.
• Traders eye upcoming economic data from Japan and the Eurozone, including Retail Sales and CPI, for further direction in EUR/JPY trading.

The Euro (EUR) appreciated against the Japanese Yen (JPY) on Wednesday, courtesy of elevated inflation in Germany putting into the table higher rates in the Eurozone (EU), while the Bank of Japan (BoJ) maintaining its loose monetary policy keeps the JPY pressured.

As Thursday’s Asian session begins, the EUR/JPY is trading at 159.67, off the new year-to-date (YTD) highs reached yesterday, almost flat.

Euro strengthens on German inflation data, rising Bund yields

Data from the German Federal Statistics Office portrayed August inflation climbing in Germany. The Harmonised Index of Consumer Prices (HICP) rose by 6.4% YoY, above estimates of 6.3%, while on a  monthly basis, inflation was 0.4% above estimates of 0.3%.

Given the European Central Bank (ECB), Christine Lagarde’s words at Jackson Hole emphasized the need to set rates at restrictive levels to achieve its 2% inflation target, the release of German inflation triggered a reaction in Bund yields, which rose sharply, underpinning the Euro.

In the meantime, the JPY remains weaker as the Bank of Japan (BoJ) stays the course regarding an ultra-loose monetary policy. However, a BoJ board member, Naoki Tamura, said the central bank has inflation “clearly in sight,” signaling that he’s hoping that around the first quarter of 2024, the BoJ would have clarity on whether the country meets the BoJ’s inflation target.

The EUR/JPY bullish bias remains in place, but traders must be aware of a possible intervention in the Forex market. Although Japanese authorities remain quiet after expressing worries about the USD/JPY exchange rate level, caution is warranted.

What to watch?

The Japanese economic docket will feature Industrial Output, Retail Sales, and Housing Starts. On the Eurozone front, Retail Sales from Germany, CPI in France and Italy, followed by the release of inflation figures in the whole bloc would dictate the direction of the EUR/JPY pair.

EUR/JPY Technical Levels