The euro (EUR) saw its five-day winning streak against the Japanese yen (JPY) come to an end on Friday, driven by Japanese officials’ comments about concerns over currency speculation. As of now, the EUR/JPY pair is trading around 185.00, down from session highs near 185.65, yet it still marks a four-week upward trend.
Kihara, Japan’s Chief Cabinet Secretary, expressed on Friday that he is “very concerned” about the fluctuations in the yen, which many in the market interpreted as a sign that Japan may step in to support the currency. Although he avoided discussing specific levels of the exchange rate, Kihara emphasized the government’s commitment to “always take appropriate action regarding exchange rates.”
Declining oil prices and government bond yields are pressuring the yen
The yen faces challenges largely due to worries around the Japanese economy being vulnerable to rising oil prices, as well as lower yields on Japanese government bonds (JGBs). This creates a significant yield gap, making the yen a prime candidate for carry trades, where investors borrow in a low-yielding currency and convert it into a high-yielding one.
On a broader economic note, data from Japan early Monday showed that the Consumer Price Index (CPI) for Tokyo slowed down in May. However, robust industrial production figures and decreasing unemployment rates still nurture hopes for potential interest rate hikes from the Bank of Japan (BOJ).
Turning to the eurozone, France’s gross domestic product (GDP) contracted in the first quarter as anticipated, while consumer inflation surged past the European Central Bank’s (ECB) 2% target in May. Later in the day, figures for Italy’s GDP and Consumer Price Index (CPI) will be released, followed by Germany’s CPI, rounding out a day heavy with economic data and framing the context for the Eurocross.
