- EUR/JPY is recovering after several days of weakness after Eurozone inflation comes out as expected.
- It had been speculated the result would fall below expectations because of weaker-than-forecast German and Spanish inflation on Thursday.
- Japanese data showed an uptick in inflation in Tokyo which suggests the BoJ could raise rates, supporting JPY.
EUR/JPY is trading a quarter of a percent higher at just above 161.00 on Friday, after the release of Eurozone inflation data for July met economists’ expectations.
Lower-than-expected German and Spanish inflation released prior to the region-wide figure, on Thursday, had set the scene for a similar below-expectations fall in Eurozone-wide inflation. However, this was not in the end the case, and the Euro rebounded on the news.
The annual Consumer Price Index (CPI) in the Eurozone rose 2.2% in August in line with estimates, and was lower than the 2.6% rise reported in July. Although this marked the lowest increase in Eurozone consumer prices since July of 2021 and contrasted with the rest of the year – in which inflation hovered between 2.4% - 2.6% – that it was in line with estimates was supportive for the Euro and EUR/JPY.
The data is unlikely to change the European Central Bank’s (ECB) gradual and cautious, data-dependent stance on reducing interest rates, according to Nordea Bank. That the ECB will probably not be cutting interest rates aggressively is propping up the Euro, since higher-for-longer interest rates attract greater inflows of foreign capital.
“Headline inflation dropped to 2.2% y/y in August – the closest it has been to the ECB’s inflation target since 2021 – but risks remain: Wage growth remains high and will keep core inflation sticky for the rest of this year,” says Anders Svendson, Chief Analyst at Nordea Bank.
One reason for the ECB’s “cautious and gradual” approach is services inflation which remains elevated at 4.2% and is unlikely to fall much before 2025 given the generous forecast for wage increases during the second half of 2024.
“Negotiated wage growth will stay high in the second half of the year, which is likely to keep service price inflation high as well,” says Svendson.
In addition, core CPI inflation remains relatively high at 2.8% and is “proving sticky” according to the analyst.
EUR/JPY may remain range bound as the Japanese Yen (JPY) gains support from recent Japanese data. This showed inflation in Tokyo, as measured by the Tokyo Consumer Price Index rising above economists’ estimates.
Annual flash Tokyo CPI ex fresh food for July came out at 2.4% compared to 2.2% in the previous month and beating expectations of 2.2%, according to data from the Statistics Bureau of Japan released on Thursday. This suggests the possibility that Japan-wide inflation could show a similar rise. This, in turn, would support the case for the Bank of Japan (BoJ) pressing ahead with raising interest rates in Japan, supporting the Yen in the process.
Employment data released at the same time as the Tokyo CPI, however, was not as strong. The Japanese Unemployment Rate unexpectedly rose to 2.7% in July from 2.5% in June.
Analysts at Capital Economics dismissed the rise in unemployment, however, saying “our conviction that the Bank (BoJ) will press ahead with another rate hike is growing.”
“The jump in the unemployment rate in July is a lagged response to the weakness in economic activity around the turn of the year,” said Marcel Thieliant, Head of Asia-Pacific at Capital Economics.
“Given that the July industrial production and retail sales data are pointing to another decent rise in Q3 GDP, the labor market should tighten again before long. And with the Tokyo CPI suggesting that underlying inflation is leveling off around the Bank of Japan’s 2% target,” he added.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.