Euro Holds Losses Against Japanese Yen As Eurozone Inflation Cools

• EUR/JPY remains weak as Eurozone HICP inflation slowed faster than expected to 2.8% in June.

• Eurozone inflation cooled faster than expected, lowering odds of prolonged high ECB rates.

• Japan’s Atsushi Mimura deemed its past currency intervention successful, adding that some US authorities voiced support.

EUR/JPY halts its four-day winning streak, trading around 185.40 during the European hours on Wednesday. The currency cross holds losses as the Euro (EUR) remains subdued following the release of the Eurozone’s preliminary Harmonized Index of Consumer Prices (HICP) data.

On Wednesday, Eurostat showed that Eurozone HICP inflation is at 2.8% Year-on-Year (YoY) in June, lower than estimates of 3% and the previous reading of 3.2%. On a monthly basis, the inflation data declined by 0.1% after rising at a similar pace in May.

Inflation cools faster than expected in the Eurozone, including Germany, France, and Italy, lowering the odds that the ECB will keep interest rates high. In Germany, June's inflation dropped to 2.3% from May's 2.6%, coming in below the 2.5% rate markets had anticipated.

The EUR/JPY cross could further depreciate as the Japanese Yen (JPY) may receive support from growing speculation that the government could intervene to defend the currency. Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, stated that a previous intervention two months ago was successful, noting that some US authorities even voiced support for the move.

Further boosting the Yen, the Bank of Japan’s (BoJ) Q2 Tankan survey showed that business sentiment surged significantly past market forecasts. The Tankan Large Manufacturing Index climbed to 22 from the previous reading of 17, easily beating the market expectation of 16. Similarly, the Tankan Non-Manufacturing Index edged up to 37 from 36 prior, outperforming the market consensus of 35. This combination of robust economic data and active intervention fears could give the JPY notable upward momentum.