EUR/JPY Rebounds from Intraday Low, Remains Steady Around 153.00 Level

The EUR/JPY cross experienced a rollercoaster ride in the financial markets, starting with a brief bullish spike that pushed it towards the 155.00 region. However, this upward momentum was short-lived as the pair swiftly plummeted to its lowest level since mid-June. The culprit behind this sudden downturn was a somewhat hawkish message delivered by the Bank of Japan (BoJ) on a Friday, which caught many traders off guard.

The BoJ’s announcement on that eventful Friday was centered around its Yield Curve Control (YCC) policy. The central bank decided to make the YCC policy more flexible by shifting away from rigid limits for the 10-year Japanese government bond yield cap, opting for “references” instead. This decision had an immediate and profound impact on the financial markets, particularly the Japanese Yen.

As a consequence of the BoJ’s policy shift, the 10-year Japanese government bond yield surged to its highest level since September 2014. This significant boost in yields strengthened the Japanese Yen, prompting aggressive selling around the EUR/JPY cross and leading to a sharp decline in its value.

Despite the initial turmoil, the EUR/JPY pair demonstrated resilience and managed to recover a considerable portion of its intraday losses. During the early European session, spot prices found stability just above the 153.00 mark, with only marginal changes for the day. This recovery was partly supported by a positive sentiment surrounding US equity futures, which diminished the safe-haven appeal of the Japanese Yen.

The pair discovered a semblance of support near the 151.40 area, following BoJ Governor Kazuo Ueda’s post-meeting press conference. Governor Ueda reiterated the importance of maintaining monetary support and expressed the central bank’s readiness to ease policy further if necessary. He also acknowledged that achieving the 2% inflation target would require additional time.

However, amid this rebound, investors remained cautious due to mixed signals emanating from the European Central Bank (ECB). In a recent development, the ECB refrained from providing explicit forward guidance on its policy stance, which led to speculation that there might be a potential pause in September. Additionally, statements from some ECB policymakers suggested that rate-hike decisions were no longer certain at the current level.

Moreover, economic conditions in the Euro Zone continued to deteriorate, as reflected in disappointing PMI prints for July. This downturn in economic indicators could exert further pressure on the Euro and potentially restrain the upside potential of the EUR/JPY cross, at least in the near term.

Given the complex and uncertain landscape, traders are exercising caution and awaiting strong follow-through buying before confirming that the recent sharp corrective decline from the 158.00 level, representing the highest point since September 2008, has finally subsided. Market participants understand the significance of closely monitoring central bank actions and economic data releases to gauge the future trajectory of the EUR/JPY cross and make well-informed trading decisions.