The EUR/JPY currency pair has shown a notable recovery from the 157.40-157.35 range, a one-month low reached at the start of the week. This rebound partially reverses the losses incurred on Friday. During the early European session, spot prices peaked, trading just below the mid-158.00s, influenced by a broad weakness in the Japanese Yen (JPY).
Recent official data revealed that Japan’s economy grew at an annualized rate of 2.9% for the April-June quarter, slightly below the preliminary estimate of 3.1%. Additionally, sluggish consumer spending in July could complicate the Bank of Japan‘s (BoJ) plans for future interest rate hikes. Meanwhile, stable equity markets are undermining the JPY’s safe-haven status, benefiting the EUR/JPY cross.
Despite these factors, Japan’s real wages unexpectedly increased for the second consecutive month in July, leaving room for a potential BoJ rate hike in 2024. BoJ Governor Kazuo Ueda emphasized last week that the central bank will continue raising rates if economic and inflation targets are met. However, concerns about a US economic downturn and ongoing geopolitical tensions may limit JPY losses and cap the EUR/JPY’s gains, particularly amid some selling pressure on the Euro.
The European Central Bank‘s (ECB) anticipated interest rate cuts in September, driven by declining Eurozone inflation and moderate US Dollar strength, are significant factors weighing on the Euro. In the absence of impactful economic releases, caution is advised before concluding that the EUR/JPY cross has reached a near-term bottom or positioning for a significant upward move.
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