EUR/JPY falls back to 200-day SMA as Tokyo inflation beats estimates

• EUR/JPY trims gains to trade near the 200-day simple moving average. 
• Tokyo core CPI betters estimates but remains well below BOJ’s target of 2%. 
• Escalating US-China tensions over Hong Kong could push yen higher. 

The bid tone around the Japanese yen strengthened early Friday, pushing EUR/JPY back to levels below the 200-day simple moving average (SMA) at 119.25 from 119.33 as Tokyo’s core inflation for May smashed estimates. 

Core consumer price index (CPI) in Tokyo rose 0.2% in May from a year earlier, bettering the consensus estimate for a 0.25 decline by a big margin. The core CPI excludes the volatile oil products but excludes food prices. Further, Japan’s Unemployment Rate dropped to 2.6% from 2.7% forecasts and 2.5% earlier whereas Job/Applicants Ratio slipped below 1.33 forecast to 1.32. Meanwhile, Japan’s April month Retail Sales also came in better than -11.5% to -9.6% However, the Preliminary reading of April month Industrial Production came in at -9.1% versus expectations for a 5.1% decline. 

Tokyo’s inflation figure is widely considered a guide to Japan-wide inflation. While the number bettered estimates, it still remains well below the Bank of Japan’s 2% target. Even so, the data has so far helped yen claw back early losses.

The moderate losses seen in the S&P 500 futures, too, could be helping the anti-risk yen. Moreover, the risk sentiment soured in the overnight trade after President Trump said he will announce something on China Friday, presumably some kind of retaliation for the dragon nation’s decision to impose the controversial security law on Hong Kong. 

The euro side of the story, however, may ensure that the downside is limited. The shared currency could continue to draw bids on the European Union’s recent announcement of a bigger-than-expected EUR 750 billion loan package, having jumped to eight-week highs near 1.11 against the US dollar on Thursday. 

Technical levels