EUR/JPY holds modest recovery gains amid notable JPY supply, remains below mid-158.00s

• EUR/JPY is gaining some positive traction on Monday amid some JPY selling.
• A downward revision to Japan’s Q2 GDP growth could complicate the BoJ’s plan to raise rates.
• A combination of factors weighs on the euro and limits any significant upside for the cross.

The EUR/JPY cross is seeing a nice recovery from the 157.40-157.35 region or above a one-month low hit on the first day of a new week and reversing some of Friday’s losses. Spot prices are climbing to a fresh daily high during the early European session and are currently trading just below the mid-158.00s amid general weakness in the Japanese yen (JPY).

Official data released earlier today showed that Japan’s economy grew at a slightly slower pace, with annual growth of 2.9 percent in the April-June quarter, compared with 3.1 percent growth in the preliminary estimate. This comes on top of sluggish growth in consumer spending in July, which could complicate the Bank of Japan’s (BoJ) plans to raise interest rates further in the coming months. Apart from this, a steady performance around the equity markets is seen undermining the safe-haven JPY and acting as a tailwind for the EUR/JPY cross.

That said, an unexpected rise in Japan’s real wages for the second consecutive month in July keeps the door open for another BoJ rate hike in 2024. Moreover, BoJ Governor Kazuo Ueda reiterated last week that the central bank will continue to raise interest rates if the economy and prices perform as expected. Apart from this, renewed concerns about a US economic recession, along with lingering geopolitical tensions, should limit losses for the JPY and limit the EUR/JPY cross amid further selling around the common currency.

Growing acceptance that the European Central Bank (ECB) will cut interest rates again in September on the back of lower eurozone inflation and modest strength in the US dollar (USD) are proving to be key factors weighing on the euro. In the absence of any relevant market-moving economic issues, the fundamental context calls for some caution before confirming that the EUR/JPY cross has formed a low and short-term positioning for any significant appreciation movement.