The EUR/JPY jumped to its highest level since early May, near 151.20, as the Euro gained traction on rising German bond yields. This means that for Thursday’s European Central Bank (ECB) decision, a 25 basis point (bps) is effectively priced in, and for the Bank of Japan (BoJ), markets expect Governor Ueda to keep its dovish policy settings unchanged. In that sense, monetary policy divergence seems to be weighing on the Yen.

German yields declined after inflation data

Germany’s final revision from May’s Harmonized Index of Consumer Prices (HICP) remained unchanged at 6.3% YoY, according to the market consensus. Likewise, the Spanish HICP from the same period of time was confirmed at 2.9% and displayed a monthly deceleration. In addition, ZEW surveys for Germany from June came in mixed, with the Economic Sentiment coming in at -8.5 vs the -13.5 expected, while the Current Situation index came in at -56.5 vs the -40 expected

Amid the disinflationary impulse in May and the ongoing weakness seen in the Eurozone (EZ), the burden of proof for the ECB has reversed, implying that the ECB will need to justify why they will need to continue to hike, if they hike at the June 15th meeting. Focus now shifts to the updated forecast of the Bank, and investors will look for clues regarding forward guidance.

That being said, following the data from Germany, bond yields are in decline, and the DAX has risen. The 10-year bond yield increased 4% to 2.46%, while the 2-year yield sits at 3.03% and the 5-year yield 2.48%, with a 0.14% decline, respectively. On the other hand, the German DAX (DAX) stock index trades with 0.83% gains