The EUR/JPY cross has seen a decline for the second consecutive day, reaching a one-month low of 158.20 during the Asian session. Despite a slight recovery in spot prices over the last hour, the cross is still down by nearly 0.30% for the day, trading around the mid-158.00s. This downward movement can be attributed to a softer risk tone, along with increasing bets on a rate hike by the Bank of Japan (BoJ), which has bolstered the Japanese Yen (JPY).
BoJ Rate Hike Bets Support JPY
The recent hawkish remarks made by Bank of Japan (BoJ) board member Junko Nagakawa have added further momentum to the JPY. Nagakawa highlighted that even after the July rate hike, real interest rates in Japan remain deeply negative, and accommodative monetary policies are still in place. She also mentioned that the BoJ is prepared to adjust the degree of monetary easing based on economic and price developments. This has led to an increase in demand for the Japanese Yen, causing downward pressure on the EUR/JPY cross.
On the other hand, expectations of a rate cut by the European Central Bank (ECB) at its September meeting have contributed to the decline in the EUR/JPY cross. With declining inflation in the Eurozone, the ECB is almost certain to lower rates again, further dampening the appeal of the Euro. This dovish sentiment surrounding the ECB has supported the prospects for additional losses in the EUR/JPY pair.
Investors are closely monitoring the release of the US consumer inflation figures, scheduled for later on Wednesday. The outcome of these data points will play a crucial role in shaping expectations regarding the Federal Reserve’s (Fed) future rate-cutting decisions. The anticipation of these results has led to a cautious mood among traders, driving some towards safe-haven assets like the Japanese Yen.
Japanese Yen Remains Strong Despite Business Confidence Decline
Despite a decline in business confidence among big Japanese manufacturers, with sentiment sinking to a seven-month low, the Japanese Yen has remained resilient. The mood among non-manufacturers has also deteriorated, reaching a one-year low, indicating a gloomy outlook. However, this negative sentiment has not translated into support for the EUR/JPY cross, signaling a strong preference for bearish trades in the near term.
The EUR/JPY cross continues to face downward pressure, driven by a combination of factors including a softer risk tone, BoJ rate hike bets, and dovish ECB expectations. The outlook for the pair remains bearish, with key economic data releases and central bank decisions likely to influence its direction in the coming days.