Japan’s July inflation rise fuels BoJ rate hike bets, capping yen losses despite persistent rate gaps with major economies.
EUR/JPY hovered around 185.70 on Monday, showing little change as markets balanced expectations for European Central Bank and Bank of Japan policy moves. The yen found modest support after Japan’s July inflation data accelerated, with headline CPI rising 1.9% year-over-year, the fastest pace this year.
Core inflation, excluding fresh food, climbed to 1.8% from 1.6% in June, reinforcing bets for further BoJ tightening. Markets now price an 82% chance of a September rate hike, up sharply from 23% before the July meeting. However, Japan’s borrowing costs remain far below those of other major economies, limiting yen gains.
Focus shifts to BoJ Deputy Governor Ryozo Himino’s Thursday speech, where hints of rapid policy normalization could bolster the yen further. Still, fiscal concerns and the wide rate differential continue to weigh on the currency’s upside.