• The EUR/JPY found support at a low of 155.06 and then recovered to 156.60.
• European and German PMIs came in weaker than expected.
• Soft inflation figures and monetary policy divergence weights on the Yen.

Despite initial losses, the EUR/JPY pair managed to regain ground, climbing from a low of 155.06 to 156.60 and closing with mild losses. Moreover, weaker-than-expected figures from the US, UK and the Eurozone seem to be having a greater impact on the Yen as the USD/JPY rose to monthly highs. In addition, monetary policy divergence between the European Central Bank (ECB) and the Bank of Japan (BoJ) applies further selling pressure to the JPY.

Sour market mood and monetary policy divergence weights on the Yen

In early June, Germany and the Eurozone witnessed a contraction in manufacturing sector activity at an increasing rate, as indicated by the declining HCOB Manufacturing PMI to 41 and 43.6, respectively. While HCOB Services PMIs remained above the expansion threshold of 50, they significantly retreated compared to May levels to 52.4 and 54.1. 

In addition, weak results were seen in the US and the UK, which contributed to a negative market environment. That being said, global bond yields are declining, indicating higher demands for bonds, while stock indexes are retreating. In that sense, the German DAX (DAX) is trading with 0.99 % losses as well as the Japanese Nikkei Stock Average, which is seeing more than 1% losses.

Adding to the weakness of the Japanese Yen, soft inflation figures remind investors that the BoJ may maintain its dovish stance. The National Consumer Price Index and Core Inflation for May have fallen short of expectations, dropping to 3.2% YoY and 4.3%, respectively. Looking forwards, investors will eye the speeches of central bankers from the BoJ and ECB next Wednesday at the ECB Sintra Forum where they will look for clues regarding the next steps from both bank’s monetary polices