The EUR/JPY pair experienced renewed buying interest following a modest decline from its recent high, maintaining its intraday gains during the early European session on Tuesday. Spot prices are currently trading just above the mid-161.00s, marking an increase of nearly 0.50% for the day. This uptick is largely supported by the weakening of the Japanese Yen (JPY).
The yen’s decline is attributed to recent dovish signals from the Bank of Japan (BoJ) and a positive tone in equity markets, which has reduced demand for the safe-haven currency. Last week, BoJ Deputy Governor Shinichi Uchida stated that the central bank would refrain from raising interest rates during periods of market instability. Additionally, former BoJ board member Makoto Sakurai forecasted a rate hike only by March 2025, citing current market turbulence and the slim chances of a swift economic recovery.
However, the BoJ’s July policy meeting summary revealed that some members believe there is room for further rate hikes and policy normalization. Moreover, the potential for escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict could temper market optimism and limit the yen’s losses. This, coupled with the absence of strong buying pressure on the euro, is likely to cap gains for the EUR/JPY pair.
Given these factors, traders are advised to exercise caution and wait for sustained buying before betting on an extension of the pair’s recent recovery from the 141.70-141.65 region, its lowest level since early January. Market participants are now focused on the upcoming flash Eurozone Q2 GDP report, set to be released on Wednesday, followed by Japan’s preliminary Q2 GDP data on Thursday. Additionally, geopolitical developments may present short-term trading opportunities around the EUR/JPY pair.
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