The EUR/JPY currency pair is facing continued selling pressure on Friday, marking its second consecutive day of losses and hitting a two-week low in the mid-164.00s during the Asian session. The decline has brought the pair below the key 200-day Simple Moving Average (SMA), signaling potential weakness ahead.
The Japanese Yen (JPY) is being supported by speculation that the Japanese government may intervene in the foreign exchange market to stabilize the currency. Earlier this week, Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, confirmed that the government would closely monitor currency movements with heightened urgency. Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, also noted that the government stands ready to act against excessive foreign exchange fluctuations if necessary.
Additionally, Japan’s Finance Minister, Katsunobu Kato, expressed concerns about the potential impact of President-elect Donald Trump’s policies on Japan’s economy, which adds further uncertainty to the market. Data from Japan’s Ministry of Finance (MOF) revealed that the country spent ¥5.53 trillion on currency intervention between June 27 and July 29, signaling a commitment to managing the Yen’s value.
On the other hand, a modest strengthening of the US Dollar (USD) has also weighed on the Euro, contributing to the downward pressure on EUR/JPY. The USD’s gains are influencing the shared currency and, in turn, amplifying the pair’s intraday slide.
Despite these challenges, the overall positive risk sentiment, along with doubts about the Bank of Japan’s (BoJ) ability to tighten monetary policy, may limit the JPY’s gains and cap the EUR/JPY pair’s downside. Donald Trump’s victory in the US presidential election has fueled optimism about stronger economic growth, while hopes for additional Chinese stimulus continue to support investor confidence. These factors provide some buffer to the EUR/JPY pair, as market participants believe Japan’s political landscape makes it unlikely that the BoJ will raise interest rates this year.
Recent data also showed a decline in Japan’s real wages and household spending for the second consecutive month in September, potentially dampening inflation expectations and further delaying the BoJ’s rate-hike plans. In contrast, growing expectations for a less dovish European Central Bank (ECB) could limit bearish sentiment around the Euro, providing some support for the EUR/JPY cross.
Given these mixed dynamics, market participants are likely to await further confirmation of selling momentum before positioning for more significant losses in the EUR/JPY pair.
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