Euro declines against Japanese Yen as German Manufacturing PMI flatlines in June

EUR/JPY falls after Germany’s June manufacturing PMI flatlined at 50.0, matching forecasts.
The Japanese Yen stays firm as traders remain on high alert for potential currency intervention by government officials.
The BoJ's core inflation rose 2.7%, and core-core hit 2.1% in May, staying above target and pressuring policymakers.

Akhtar Faruqui FXStreet

EUR/JPY extends its losses for the second successive day, trading around 184.30 during the European hours on Tuesday. The currency cross depreciates following the release of HCOB Purchasing Managers Index (PMI) data from Germany. Attention is shifted toward Eurozone PMI data due later in the day.

Germany’s preliminary HCOB Manufacturing PMI flatlined at 50.0 in June, matching forecasts after a 50.1 reading in May and leaving the sector stuck on the threshold between expansion and contraction. Meanwhile, the Services PMI disappointed, dropping to 46.8 from May's 48.1 and missing the 48.7 market expectation. Composite PMI has come in at 48.0, lower than the previous reading of 48.8. The data was expected to arrive at 49.9.

The EUR/JPY cross faces limited upside as the Japanese Yen (JPY) holds its ground amid intensifying fears of government intervention. On Monday, Finance Minister Satsuki Katayama stated that officials are prepared to respond appropriately to currency fluctuations at any time. Compounding these warnings, Chief Cabinet Secretary Minoru Kihara reiterated on Tuesday that the government will take decisive action against volatile foreign exchange moves if necessary.

Adding to the JPY's resilience, fresh economic data from the Bank of Japan (BoJ) on Tuesday showed that underlying inflation pressures remain sticky. The BoJ's new core consumer inflation gauge rose 2.7% in May, while the core-core CPI climbed 2.1%. Although both figures slowed slightly from their April readings of 2.8% and 2.2%, respectively, they crucially remain above the central bank’s 2% target, keeping pressure on policymakers.

Economic Indicator

HCOB Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging business activity in Germany’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. As Europe’s main manufacturing hub, German PMI data can also be a bellwether of the sector’s health in the broader continent. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for EUR.

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Big day of PMIs ahead

In the euro area, June flash PMIs are released. Most respondents will likely have answered after the US-Iran deal, yet the impact of lower oil prices is unlikely to already show up in activity data. We expect manufacturing to edge down to 50.9 (May: 51.6), while we expect services to see a modest improvement to 48.8 (May: 47.7).

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