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Market News Despite sluggish rates, the EUR/JPY remains firmer around 138.00, with inflation/recession in focus

Despite sluggish rates, the EUR/JPY remains firmer around 138.00, with inflation/recession in focus

EUR/JPY gains bids to reestablish an intraday high near the two-week peak. After resuming upside momentum the day prior, US Treasury yields await additional information. The halting of a Russian pipeline and the expectation that the Bank of Japan's monetary policy will remain unchanged, notwithstanding the acceleration of price increases, pose challenges for buyers. Inflation statistics from China, Germany, and the United States will be critical for near-term direction.

Alina Haynes
2022-08-10
744

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As Tokyo opens on Wednesday, EUR/JPY bulls flirt with the 138.00 level while maintaining the previous day's gains at a two-week high. In doing so, the cross-currency pair disregards Japan's Producer Price Index (PPI) data in the context of declining Treasury yields. The pair's recent inertia may also be attributable to investors' hesitance ahead of July's crucial inflation data from the world's major economies.

 

Japan's PPI for July matched market expectations of 0.4% MoM, but increased to 8.6% YoY versus the 8.6% market consensus. In spite of this, 10-year US Treasury rates remain stagnant around 2.79 percent a day after slowing their decline to start the week.

 

On Tuesday, MNI cited sources acquainted with the Bank of Japan's (BOJ) thinking as saying that the BOJ anticipates prices to rise more swiftly than was anticipated during the July meeting. "The rise in inflation to 3% or higher by the end of the year, however, will not be sufficient to prompt a change in its easy policy stance unless it contributes to a wage acceleration next spring," MNI stated.

 

Elsewhere, the JPY looks to be affected by the political instability, which suggests that Japanese Prime Minister Fumio Kishida is prepared to reshuffle his cabinet. According to Reuters, however, Finance Minister Shunichi Suzuki is likely to remain his position, signaling no major threats to the Bank of Japan's (BOJ) cheap money policies. The same should provide optimism for JPY bearish.

 

Notably, the EUR/JPY exchange rate should have been impacted by worries that the Eurozone will face additional difficulties due to Russia's stopping of oil exports. According to Reuters, Russia has halted oil supplies via the southern segment of the Druzhba pipeline due to transit payment concerns.

 

In contrast, anticipation of additional BOJ easing and sluggish rates, as well as preparations for today's critical CPI data from China, Germany, and the U.S. for July, looked to have driven EUR/JPY prices in recent weeks.

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