EUR/JPY treads water above 173.50 following Japan's Machinery Orders data

• EUR/JPY holds steady as softer Core Machinery Orders data raise odds of the BoJ keeping rates unchanged on Friday.
• Japan's Core Machinery Orders dropped 4.6% MoM in July, surpassing market expectations of a 1.7% decline.
• The Euro receives support as the ECB is seen as likely to be finished with rate cuts after the latest inflation data.

EUR/JPY remains steady after registering small losses in the previous session, trading around 173.70 during the Asian hours on Thursday. The currency cross received support as the Japanese Yen (JPY) struggles after weaker-than-expected Core Machinery Orders data from Japan increased the likelihood of the Bank of Japan (BoJ) leaving interest rates unchanged on Friday. Analysts indicate that the central bank could raise rates by 25 basis points in October amid signs of economic resilience.

The Japanese Cabinet Office showed that Japan's Core Machinery Orders fell 4.6% month-over-month in July, exceeding the market expectations of a 1.7% decline. The annual private-sector orders rose 4.9% in July, against the expected 5.4% increase.

However, the Japanese Yen could appreciate against its peers as the US Federal Reserve (Fed) delivered a 25-basis-point rate cut on Wednesday, coupled with an indication of a further 50 bps of easing before year-end, which marks a significant divergence from expectations that the BoJ would continue on its policy normalization path.

The EUR/JPY cross may further appreciate as the Euro (EUR) draws support amid rising expectations that the European Central Bank (ECB) is done cutting rates following the latest inflation figures. Traders await the speech from the European Central Bank (ECB) Christine Lagarde later on Thursday.

ECB Governing Council members Martins Kazaks and Gediminas Simkus said earlier this week that interest rates do not need further cuts at the moment, though they did not rule out a potential move in the future. ECB Vice President Luis de Guindos added that the current rate is appropriate given inflation trends and the transmission of monetary policy.