EUR/JPY trims a part of intraday gains, up a little around 157.00 ahead of ECB decision

• EUR/JPY builds on the overnight recovery from a one-month low amid a modest JPY weakness.
• An unexpected fall in Japan’s PPI, along with a positive risk tone, undermines the safe-haven JPY.
• Bets for another BoJ rate hike in 2024 should cap the cross ahead of the key ECB policy decision.

The EUR/JPY cross gains some positive traction on Thursday and recovers further from over a one-month low, around the 155.45 region touched the previous day. Spot prices, however, retreat a few pips from the daily peak and currently trade around the 157.00 mark as investors look to the European Central Bank (ECB) interest rate decision for a fresh impetus.

The ECB is widely expected to announce a 25 basis points (bps) rate cut at the end of its September policy meeting, marking the second adjustment in its current policy easing cycle. The market focus, however, will remain glued to the updated economic projections and the forward guidance. Apart from this, ECB President Christine Lagarde’s comments at the post-meeting press conference will influence the shared currency and determine the near-term trajectory for the EUR/JPY cross. 

Heading into the key central bank event risk, a soft reading on Japan’s Producer Price Index (PPI) undermined hawkish signals from the Bank of Japan (BoJ) and prompted some selling around the Japanese Yen (JPY). In fact, the headline PPI declined by 0.2% in August and the yearly rate decelerated more-than-anticipated, to 2.5% from 3.0% in July. This, along with a generally positive tone around the equity markets, dents demand for the safe-haven JPY and lends support to the EUR/JPY cross. 

That said, comments by Bank of Japan (BoJ) board member Naoki Tamura, saying that the path towards ending the easy policy is still very long, reaffirms bets that the central bank will raise borrowing costs further by the end of this year. This marks a big divergence in comparison to a dovish stance adopted by the ECB, which should limit the JPY losses. Hence, it will be prudent to wait for strong follow-through buying before confirming that the EUR/JPY cross has bottomed out.