Euro Holds Near 12-Week Peak Versus Yen as Strong Eurozone PMI Counters BoJ Uncertainty

The EUR/JPY cross consolidated modest losses on Friday, trading around 186.30 after touching a 12-week high of 186.67 in the previous session. Fresh economic data from both the Eurozone and Japan failed to trigger a decisive directional move.

Preliminary Eurozone HCOB Composite PMI surged to a five-month high of 51.9 in July, comfortably exceeding the 50.2 consensus estimate and improving on June’s 50.0 reading. The Services PMI climbed to 51.6 from 49.4, while the Manufacturing PMI rose to a three-month high of 52.0 from 51.4, signaling broad-based momentum.

The upbeat figures reinforce evidence of economic resilience amid heightened geopolitical tensions, bolstering expectations that the European Central Bank can sustain a restrictive policy stance. On Thursday, the ECB left its three key interest rates unchanged following a 25-basis-point hike in June, reiterating that future decisions will hinge on the inflation outlook.

Money markets have fully priced in another rate increase at the September meeting. ECB policymaker Gediminas Šimkus stated Friday that inflation is projected to remain above target for an extended period, adding that he views the probability of a hike as higher than a hold. He noted, however, that officials see no second-round effects from inflation and will have additional data before the September gathering.

Meanwhile, the Japanese yen remained broadly offered, keeping traders on alert for potential intervention as USD/JPY hovers near a 40-year peak. Elevated oil prices and Japan’s ultra-low interest rates continue to weigh on the currency.

Data released earlier showed Japan’s headline National CPI accelerated to 1.7% year-over-year in June from 1.5% in May. According to Reuters, the Bank of Japan is widely expected to maintain rates at next week’s policy meeting while warning that inflation could exceed the 2% target, though policymakers believe the risk of an immediate oil-driven inflation shock has receded since April.

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