- EUR/JPY faces renewed selling pressure on Tuesday, halting its recovery from a more than one-month low.
- The contrasting policy outlooks between the Bank of Japan (BoJ) and the European Central Bank (ECB) continue to weigh on the pair.
- Traders are likely to remain cautious, awaiting the upcoming BoJ policy meeting before making new directional moves.
The EUR/JPY pair attracts fresh sellers following an uptick to the 157.10 region during the Asian session, stalling its modest recovery from the 155.00 psychological level—its lowest since August, touched the previous day. Spot prices have now dropped to the 154.25-154.20 range and appear vulnerable to extending the recent downward trend seen over the past two weeks.
The Japanese Yen (JPY) remains supported by hawkish signals from Bank of Japan (BoJ) officials, indicating the possibility of further interest rate hikes by the end of the year. Additionally, market caution ahead of this week's key central bank events further bolsters the JPY's safe-haven appeal, placing downward pressure on the EUR/JPY pair.
Key events include the US Federal Reserve's policy announcement on Wednesday, followed by the Bank of England (BoE) update. However, the main focus will be on the BoJ's policy update on Friday, which is expected to significantly influence JPY price dynamics and determine the next direction for the EUR/JPY pair.
Meanwhile, the US Dollar's (USD) selling pressure, driven by expectations of an oversized rate cut by the Federal Reserve, is providing some support to the Euro. This could prevent traders from making aggressive bearish bets on EUR/JPY, helping limit further losses. Still, the diverging policy outlook between the BoJ and the European Central Bank (ECB) suggests that the pair's downside remains the path of least resistance.
It's worth noting that last week, the ECB cut interest rates for the second time this cycle and signaled a declining trajectory for borrowing costs. However, reports that ECB policymakers see an interest rate cut in October as unlikely—barring a major deterioration in growth prospects—might continue to offer some support to the Euro and limit deeper declines in EUR/JPY.
