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

• EUR/JPY drifts lower on Friday amid sustained buying interest surrounding the JPY.
• Hawkish BoJ expectations, along with a softer risk tone, benefit the safe-haven JPY.
• Bets for a September ECB rate cut undermine the Euro and contribute to the slide.

The EUR/JPY cross struggles to capitalize on the previous day’s modest bounce from the vicinity of mid-158.00s or a nearly one-month low and attracts some sellers during the Asian session on Friday. Spot prices currently trade around the 159.00 mark amid the prevalent buying interest surrounding the Japanese Yen (JPY).

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

Furthermore, BoJ Board Member Hajime Takata said that we must adjust monetary conditions by another gear if we can confirm that firms will continue to increase capital expenditure, wages, and prices. In contrast, the European Central Bank (ECB) is almost certain to cut interest rates again in September in the wake of declining inflation in the Eurozone. This further contributes to the EUR/JPY pair’s downtick.

The shared currency, however, seems to draw some support from a modest US Dollar (USD) weakness, led by bets for a larger interest rate cut by the Federal Reserve (Fed) later this month. This, in turn, might hold back traders from placing aggressive bearish bets around the EUR/JPY cross and help limit deeper losses. Nevertheless, spot prices remain on track to register losses for the third successive week.