EUR/JPY struggles near mid-158.00s, over one-month low amid notable JPY strength

• EUR/JPY is down for a second day in a row and is falling to a more than one-month low.
• A softer risk tone, along with BoJ rate hike bets, is boosting the JPY and putting some pressure on it.
• Dovish ECB expectations contribute to the slide and support the outlook for further losses.

The EUR/JPY cross attracted sellers for the second day in a row on Wednesday and dropped to the 158.20 area, or the lowest level since August 5 during the Asian session. Spot prices, however, manage to recover a few nuggets in the last hour and are currently trading in the mid-158.00s, further down nearly 0.30% for the day amid further buying around the Japanese yen (JPY).

Investors are turning cautious ahead of the release of key US consumer inflation figures later this Wednesday, which will play a key role in influencing expectations of the Federal Reserve’s (Fed) rate cut path. This is evident from a generally weaker tone around equity markets and is driving some safe haven flows to the JPY. Adding to this, dovish remarks from Bank of Japan (BoJ) board member Junko Nagakawa provide further boost to the JPY and put downward pressure on the EUR/JPY exchange.

Nagakawa noted that even after the July rate hike, real interest rates remain deeply negative and accommodative monetary conditions remain. She added that the BoJ is likely to adjust the degree of monetary easing if the economy and prices move in line with its projection. Instead, the European Central Bank (ECB) is almost certain to cut rates again at its September meeting on Thursday, amid falling eurozone inflation. This further contributes to the tone around the EUR/JPY cross.

Meanwhile, JPY bulls appear fairly unaffected by a monthly Reuters poll, which showed business confidence at major Japanese manufacturers fell to a seven-month low of 4 in September, down sharply from 10 the previous month. In addition, sentiment among non-manufacturers fell for a third consecutive month to a one-year low, suggesting a gloomy sentiment. This, however, does not support the EUR/JPY cross, suggesting that the short-term trend remains firmly tilted in favor of bear traders.