EUR/JPY trades modest losses around 159.00, looks vulnerable near one-month low

• EUR/JPY falls on Friday amid sustained buying interest around the JPY.
• Hawkish BoJ expectations, along with a softer risk-on tone, benefit the safe haven JPY.
• Bets on an ECB rate cut in September are undermining the euro and contributing to the slide.

The EUR/JPY cross is struggling to capitalize on the previous day’s modest rebound from the mid-158.00s or a near one-month low and is attracting some sellers during the Asian session on Friday. Spot prices are currently trading around 159.00 amid prevailing buying interest around the Japanese Yen (JPY).

Against the backdrop of measured Bank of Japan (BOJ) expectations, a generally weaker tone around the equity market is seen as a key factor supporting the safe-haven JPY. In fact, markets have priced in the possibility of another BOJ rate hike by the end of this year, and bets were reaffirmed by data released on Thursday showing that real wages in Japan rose for a second straight month in July.

In addition, BoJ Governing Council member Hajime Takata said we need to adjust monetary conditions by another notch if we can confirm that firms will continue to raise capital spending, wages and prices. Instead, the European Central Bank (ECB) is almost certain to cut interest rates again in September as inflation in the euro zone falls. This further contributes to the decline in the EUR/JPY pair.

The common currency, however, appears to be drawing some support from modest weakness in the US dollar (USD), led by bets for a bigger interest rate cut by the Federal Reserve (Fed) later this month. This, in turn, could prevent traders from placing aggressive bear bets around the EUR/JPY cross and help limit deeper losses. However, spot prices remain on track for a third consecutive week of losses.