The euro extended its winning streak against the Japanese yen on Monday, reaching its highest level in nearly 11 months. The EUR/JPY pair climbed steadily, supported by steady demand for the euro and a persistently weak yen. Traders expect the European Central Bank (ECB) to proceed cautiously with rate cuts, while the Bank of Japan’s (BoJ) slow approach to tightening monetary policy keeps the yen under pressure.
At the time of writing, EUR/JPY traded near 169.21, up 0.53% on the day, just below the intraday peak of 169.72. Technical indicators suggest room for further gains.
New data from the Eurozone showed a fragile but stable recovery. The HCOB Eurozone Composite Purchasing Managers Index (PMI) remained steady at 50.2 in June, slightly below expectations of 50.5. The services sector saw a slight rebound, with its PMI rising to 50.0 from 49.7, signaling stabilization after recent weakness. However, the manufacturing sector continues to face challenges, with its PMI steady at 49.4, below the forecast of 49.8, highlighting ongoing headwinds for growth in the region.
In contrast, Japan’s economic data painted a more positive picture. The au Jibun Bank Japan Composite PMI rose to 51.4 in June from 50.2, while the Manufacturing PMI moved into expansion territory at 50.4 — the first time in over a year and above market forecasts. The Services PMI also improved slightly to 51.5 from 51.0, reflecting steady growth.
Supporting the euro, ECB President Christine Lagarde called on EU lawmakers to advance legislation for a digital euro, emphasizing its importance for Europe’s financial sovereignty. Meanwhile, Bundesbank President Joachim Nagel stressed that large-scale bond purchases should only be used in rare emergencies, signaling that interest rates will remain the ECB’s main tool. This suggests the ECB will avoid heavy stimulus, keeping the euro attractive compared to the yen.
Meanwhile, the Bank of Japan maintained its key interest rate last week and announced a gradual plan to reduce bond purchases over the next two years. Governor Ueda stated that further tightening would depend on inflation sustainably reaching target levels, indicating a more cautious stance than other central banks. This policy divergence continues to weigh on the yen and supports the upward momentum in EUR/JPY.
