Euro strengthens against Japanese Yen ahead of Eurozone HICP inflation data

EUR/JPY rises after a flat previous day, trading around 186.00 during the early European hours on Tuesday. The Euro gains ground against the Japanese Yen (JPY) as traders increasingly price in a hawkish stance from the European Central Bank (ECB), driving the currency cross higher ahead of crucial economic data.

Market participants are bracing for the preliminary Harmonized Index of Consumer Prices (HICP) reading from the Eurozone due later on Tuesday, which is expected to offer vital clues regarding the ECB's interest rate outlook. Headline inflation is projected to tick up to 3.2% YoY in May from 3.0% in April, and any signs of hotter-than-expected inflation could provide the shared currency with a near-term boost.

ECB Executive Board member Isabel Schnabel delivered hawkish remarks on Monday, signaling a potential need for further rate hikes. Schnabel warned that the central bank can no longer overlook the inflationary impact of the conflict in Iran, noting that price pressures have spread well beyond the energy sector and heightened the risk of unanchored inflation expectations.

Meanwhile, the Japanese Yen (JPY) continued its slide on Tuesday, weakening beyond 159.5 per US Dollar (USD). This downward move brings the currency dangerously close to the critical 160 threshold, the exact level that previously triggered direct market intervention from Japanese officials to support the domestic currency, which could limit the upside of the EUR/JPY cross.

Japan’s Finance Minister Satsuki Katayama addressed the JPY's depreciation on Tuesday, stating that persistent volatility in the oil markets remains a concern and that authorities stand ready to take suitable measures if necessary. While Katayama confirmed that ministry officials are in close communication with their counterparts in Washington regarding foreign exchange developments, she ultimately declined to comment on whether a direct currency intervention is imminent.