The EUR/JPY pair has been on a downtrend for the second consecutive day, hitting a one-month low. This decline can be attributed to a softer risk tone in the market, along with increased bets for a rate hike by the Bank of Japan (BoJ), which has bolstered the Japanese Yen (JPY) and exerted downward pressure on the Euro (EUR).
Furthermore, expectations of dovishness from the European Central Bank (ECB) have also contributed to the slide in the EUR/JPY pair. With the ECB widely expected to cut rates at its September meeting due to declining inflation in the Eurozone, investors are taking a cautious approach towards the Euro, leading to a bearish bias in the currency pair.
The hawkish remarks by a BoJ board member, Junko Nagakawa, have also played a role in boosting the JPY and pressuring the EUR/JPY cross. Nagakawa highlighted the fact that even after the July rate hike, real interest rates in Japan remain deeply negative, indicating that accommodative monetary policy will continue. This stance by the BoJ has further strengthened the position of the JPY against the EUR.
Despite a decline in business confidence among big Japanese manufacturers and non-manufacturers, the JPY has remained resilient against the EUR. This suggests that the near-term bias for the EUR/JPY pair favors bearish traders, as risk aversion and rate hike expectations continue to dominate the market sentiment.
According to the percentage change data for the Japanese Yen against major currencies, the JPY was the strongest against the New Zealand Dollar. This indicates a broader strength in the JPY compared to other currencies, reflecting the overall risk-off sentiment in the market.
The EUR/JPY pair has faced downward pressure due to a combination of factors, including risk aversion, BoJ rate hike bets, dovish ECB expectations, and hawkish comments from BoJ officials. As market sentiment remains cautious and the outlook for the Eurozone economy stays uncertain, it is likely that the EUR/JPY pair will continue to drift lower in the near term. Investors will closely watch the upcoming US consumer inflation figures for further direction on the Fed’s rate-cut path and its impact on the currency markets.