EUR/JPY traded little changed near 173.70 during Thursday’s Asian session, holding firm after modest losses in the previous day. The cross found support as the Japanese Yen (JPY) softened following weaker-than-expected machinery orders data, which increased the likelihood that the Bank of Japan (BoJ) will keep policy steady on Friday.
Japan data adds pressure on BoJ
The Cabinet Office reported that Japan’s Core Machinery Orders fell 4.6% month-over-month in July, far exceeding the expected 1.7% decline. On a yearly basis, private-sector orders rose 4.9%, below the forecast of 5.4%.
The weaker data reinforced expectations that the BoJ will maintain its benchmark rate at 0.5% this week. However, analysts note the possibility of a 25-basis-point hike in October as signs of underlying economic resilience remain.
At the same time, monetary policy divergence could weigh on the JPY in the near term, as the US Federal Reserve (Fed) cut rates by 25 bps on Wednesday and signaled an additional 50 bps of easing by year-end—contrasting with speculation that the BoJ will continue normalizing policy later this year.
Euro outlook supported by ECB stance
The Euro (EUR) remains underpinned by expectations that the European Central Bank (ECB) has ended its rate-cut cycle. Recent inflation data backed the ECB’s decision to hold steady at its last meeting, while policymakers have stressed that current policy is appropriate.
Governing Council members Martins Kazaks and Gediminas Simkus both said earlier this week that further cuts are not needed for now, though they did not completely rule them out. Meanwhile, ECB Vice President Luis de Guindos reiterated that the current stance aligns with inflation dynamics and effective policy transmission.
Traders now turn their attention to ECB President Christine Lagarde’s speech later on Thursday for further policy cues.
