As of Monday, EUR/JPY was trading at about 185.80, showing a slight gain of 0.05% for the day. Anticipation of additional monetary tightening from the European Central Bank (ECB) is bolstering demand for the euro (EUR), with the pair also getting some support after the release of German retail sales data.
According to Destatis, German retail sales decreased by 0.3% month-on-month in April, following a revised 0.3% drop in March. Interestingly, this was a bit better than what analysts had predicted, which was a 0.4% decline. Year-on-year, retail sales also fell by 0.3%, highlighting ongoing weakness in consumer spending within Europe’s largest economy.
The HCOB Eurozone Manufacturing Purchasing Managers Index (PMI) for May sat at 51.6, down from a nearly four-year high of 52.2 in April. Still, the final reading slightly surpassed the preliminary figure of 51.4, indicating that manufacturing activity is expanding across the euro area, albeit at a slower rate.
Despite these somewhat better-than-expected numbers, inflation remains a vital concern for investors. Preliminary May figures showed that while price pressures in Germany have eased, they have intensified in France, Italy, and Spain. Inflation rates in these countries continue to be significantly above the ECB’s target of 2%, which is raising speculation about a possible 25 basis point rate hike during the meeting on June 11.
The ECB’s latest survey on consumer expectations revealed that one-year inflation expectations held steady at 4%, while three-year expectations dipped slightly to 2.9% from the previous 3%. Meanwhile, five-year expectations remained unchanged at 2.4%, indicating that households still foresee rising inflationary pressures in the near term.
In Japan, the final S&P World Manufacturing PMI for May was confirmed at 54.5, a modest drop from April’s peak of 55.1, yet still in expansion territory. Interestingly, even after a 6.5% increase year-on-year in the final quarter of 2025, capital investment by Japanese companies remained flat in the first quarter, pointing to a potential slowdown in investment momentum.
Comments from officials at the Bank of Japan (BOJ) continue to support expectations of a shift toward monetary policy normalization. A summary from April’s meeting indicated that most policymakers are in favor of raising interest rates soon, although they also expressed caution about persistent inflation risks.
This contrast between the ECB, poised to raise interest rates possibly this month, and the BOJ, which is proceeding more cautiously, keeps the euro/yen at strong levels, although gains at the start of the week appear somewhat limited.
