The euro gained ground against the yen despite the release of weak economic data from both Japan and Germany. While Japan’s industrial production and housing starts data for June missed estimates, the German retail sales data for June was worse than estimates. Still, the euro gained against the yen because of higher-than-anticipated European annual core inflation data for July. This has stoked expectations of another rate hike in the upcoming policy meeting, and consequently, the market has started betting on the euro’s rise. Overall, the EUR/JPY pair rallied from a low of 155.10 to a high of 157.25 in the past 24 hours.
According to the preliminary data published by Japan’s Ministry of Economy, Trade, and Industry (METI), the country’s industrial production rebounded with a growth of 2% m-o-m in June following a 2.20% decline in the previous month but missed forecasts of a 2.50% increase. The increase was driven by cars and electronic devices.
Correspondingly, the production index increased to 105.30 in June. Likewise, the shipments index rose by 1.50% to 104.80. However, the inventories index inched down by 0.10% to 105.50. Additionally, the inventory ratio fell by 1.20% to 104.90.
Furthermore, factory output grew by 1.30% q-o-q in the June 2023 quarter.
The METI also stated that retail sales increased 5.90% y-o-y in June, following a 5.80% growth in the previous month and greater than forecasts of 5.40%. The reported figure reflects the 16th successive monthly growth in retail trade as consumption continued to rebound from the pandemic-triggered contraction.
The automobile sector posted a 19.30% surge in retail sales. Likewise, pharmaceuticals and cosmetics posted a growth of 9.50%. While food and beverages recorded an increase of 6.80%, department stores reported a rise of 4.60%. Non-store retailers recorded an increase of 3.60%.
On a m-o-m basis, retail sales fell by 0.40% in June after increasing by 1.40% in May. Economists had anticipated a decline of 0.70%.
According to Japan’s Cabinet Office, the country’s consumer confidence increased to 37.10 in July from 36.20 in June and surpassed forecasts of 36.10. The reported figure reflects the highest reading since December 2021, as the economy rebounded from Covid-19 based disruptions.
All factors that make up households’ sentiment recorded an increase. Income growth rose by 0.30 points to 39.20. Likewise, employment inched up from 0.90 to 44. Overall livelihood rose by 1 point to 33.90. Notably, the inclination to purchase durable goods posted an increase of 1.20 points to 31.10.
According to Japan’s Ministry of Land, Infrastructure, Transport, and Tourism, the country’s housing starts fell by 4.80% y-o-y in June, following a 3.50% growth in the previous month and worse than forecasts of a 0.20% decline. The reported figure reflects the fourth decline in construction starts in 2023.
According to Destatis, German retail sales fell by 0.80% m-o-m in June following a 0.40% increase in the previous month, which disappointed the market, which was expecting a 0.30% decline.
On a y-o-y basis, German retail sales fell by 1.60% in June 2023.
The Federal Statistical Office also stated that German retail sales decreased by 4.50% in 1H23, compared with a similar period in 2022.
The decrease was led by a 5.80% drop in the retail food sector in the first half of 2023. Likewise, non-food retail sales fell by 3.60% in the first half of 2023. Furthermore, online and mail order business declined by 7.30% in the January-June 2023 period. On the contrary, textiles, clothing, shoes, and leather goods recorded sales growth of 7.30% in 1H23.
The Eurozone consumer price index rose by 5.30% y-o-y in July, compared with 5.50% in the previous month and in line with economists’ estimates. Food, alcohol, and tobacco prices rose by 10.80% y-o-y in July, following a 11.60% increase in the previous month. Services grew by 5.60% y-o-y in July, following a 5.40% rise in June. While non-energy industrial goods rose by 5% y-o-y in July, energy fell by 6.10% in the same period.
Excluding energy, fuel, alcohol, and tobacco, as per Eurostat, the core consumer price index surged 5.50% y-o-y in July, following a 5.50% rise in the previous month and a notch higher than the 5.40% growth anticipated by economists.
The Eurozone GDP, as per the preliminary (flash) data published by Eurostat, inched up 0.30% q-o-q in the June 2023 quarter after remaining unchanged in the previous quarter and a notch higher than the 0.20% growth anticipated by economists.
The weak economic data from both Japan and Germany, and the expectation of another rate hike in Europe are expected to keep the EUR/JPY pair range-bound with a slight bullish bias in the short term.
Technically, the EUR/JPY pair is rising after testing the support at 153.70. The next resistance is anticipated to be only near 161.60. Additionally, the currency pair is trading above its 50-day moving average, while the stochastic indicator is in the bullish zone. Therefore, we anticipate the EUR/JPY pair to remain in an uptrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
