The EUR/JPY pair has been on a downward trajectory for the second consecutive day, hitting a low not seen in over a month. The decline can be attributed to a combination of factors such as a softer risk tone in the market and increased bets on a rate hike by the Bank of Japan (BoJ). This has led to a surge in demand for the Japanese Yen, putting pressure on the EUR/JPY cross. The dovish expectations surrounding the European Central Bank (ECB) have also played a role in the decline, signaling further potential losses in the near future.
Investors are currently treading cautiously as they await the release of key US consumer inflation data later in the day. This data will be crucial in shaping expectations regarding the Federal Reserve’s rate-cutting strategy. The prevailing weak sentiment in the equity markets has prompted a flight to safety, with investors flocking towards the Japanese Yen as a safe-haven asset. Moreover, hawkish remarks from a BoJ board member have further bolstered the JPY and added downward pressure on the EUR/JPY pair.
While the BoJ has hinted at potential adjustments to monetary easing if the economy and prices align with projections, the ECB is expected to lower rates once again at its upcoming September meeting. The declining inflation in the Eurozone has reinforced expectations of additional monetary stimulus from the ECB, further dampening the sentiment surrounding the EUR/JPY pair. The contrasting policy outlooks between the BoJ and ECB are likely to contribute to the continued bearish trend of EUR/JPY in the near term.
Despite a decline in business confidence among Japanese manufacturers, with sentiment reaching a seven-month low, the strength of the Japanese Yen remains unaffected. Non-manufacturers also reported a drop in mood to a one-year low, indicating a gloomy outlook. However, this negative sentiment in Japan has failed to provide any meaningful support to the EUR/JPY pair, underscoring the prevailing bias in favor of bearish traders.
An analysis of the percentage change of the Japanese Yen against major currencies showcases its strength, particularly against the New Zealand Dollar. The heat map displaying percentage changes of major currencies against each other reveals the dynamic nature of currency movements in the market. The resilience of the Japanese Yen against global uncertainties and economic challenges underscores its status as a safe-haven currency, further contributing to the downward pressure on the EUR/JPY pair.
The bearish trend of EUR/JPY is a reflection of the complex interplay of global economic developments, central bank policies, and market sentiment. While underlying factors such as risk aversion and monetary policy outlooks continue to influence currency movements, the resilience of the Japanese Yen as a safe-haven asset remains a key driver of the downward pressure on the EUR/JPY pair. Traders and investors will need to closely monitor economic data releases and central bank decisions to navigate the volatile currency markets effectively.