Why is the Euro slipping as weak Eurozone data and BoJ tightening bets support the Japanese Yen?

EUR/JPY slips 0.13% on Friday amid mixed signals from European economic releases.
September's Eurozone Retail Sales fell 0.7%, a substantially steeper decline than the 0.1% forecast.
Expectations of a Japanese interest rate increase in December, alongside wider risk aversion, lend support to the Japanese Yen.

Pressure persists on EUR/JPY on Friday as mixed Eurozone economic releases weigh on the pair, while risk-averse sentiment and expectations of further Bank of Japan (BoJ) interest rate increases support the Japanese Yen (JPY). At the time of writing, the pair is trading near 176.80, down 0.13% for the day.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Weakening consumer demand emerged as a concern in Friday's European data. Eurostat reported a 0.7% month-on-month (MoM) fall in Eurozone Retail Sales for September, after August's decline was revised to 2%. Markets had anticipated a much smaller contraction of 0.1%. Annual Retail Sales growth eased to 0.4% in September from 1.3% a month earlier, also falling short of the 0.6% consensus forecast. The data indicate continued weakness in European household demand, which could weigh on the region's growth prospects and constrain a recovery in the Euro (EUR).

An earlier release showed that German Industrial Production rose 0.7% MoM in September. While this exceeded forecasts for an unchanged reading, it marked a slowdown from August's revised growth of 1%. Robust output in the automotive and pharmaceutical sectors accounted for most of the improvement; construction and the manufacture of machinery and equipment, however, contracted.

Turning to monetary policy, European Central Bank (ECB) Chief Economist Philip Lane warned on Friday that energy inflation could affect wage bargaining and pricing decisions throughout the economy. Reiterating that inflation must return to the ECB's target within one to two years, he underscored the need for monetary policy to curb spillovers from inflationary pressures.

Financial conditions had become tighter, Lane observed. He added that fiscal policy, having proved more expansionary than anticipated, was likely to turn more restrictive from next year. He remained cautious about forthcoming ECB decisions, stressing that more information needed to be collected before the December meeting.

The Japanese Yen continues to draw support from expectations surrounding Japan's monetary policy. Published on Thursday, the minutes of the BoJ's September meeting revealed agreement among policymakers that interest rates should keep rising gradually, alongside adjustments to the degree of monetary accommodation.

Calls from some members for a quicker pace of monetary tightening strengthened market expectations that another rate increase could come as early as December. As investors weigh the two central banks' diverging policy paths, this prospect lends support to the Japanese currency, especially against the Euro.

Demand for the Japanese Yen is also being sustained by wider risk aversion, reflecting its traditional role as a safe-haven currency. Together, defensive flows and monetary policy expectations continue to weigh on EUR/JPY.

How Is the Euro Performing Today?

The Euro's strongest performance today was against the New Zealand Dollar. Its percentage movements against the major currencies listed are set out in the table below.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.39%	0.40%	0.28%	0.37%	0.85%	0.93%	0.09%
EUR	-0.39%		0.01%	-0.14%	-0.01%	0.47%	0.53%	-0.32%
GBP	-0.40%	-0.01%		-0.13%	-0.02%	0.46%	0.52%	-0.33%
JPY	-0.28%	0.14%	0.13%		0.12%	0.59%	0.66%	-0.19%
CAD	-0.37%	0.01%	0.02%	-0.12%		0.47%	0.54%	-0.30%
AUD	-0.85%	-0.47%	-0.46%	-0.59%	-0.47%		0.07%	-0.78%
NZD	-0.93%	-0.53%	-0.52%	-0.66%	-0.54%	-0.07%		-0.83%
CHF	-0.09%	0.32%	0.33%	0.19%	0.30%	0.78%	0.83%

To read the heat map of percentage movements between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Euro on the left and following its row across to the US Dollar gives the percentage change for EUR (base)/USD (quote) in the intersecting cell.