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

EUR/JPY gains some positive traction on Monday amid the emergence of some JPY selling.
A downward revision of Japan’s Q2 GDP growth might complicate BoJ’s plan to raise rates.
A combination of factors weighs on the Euro and caps any meaningful upside for the cross.

Haresh Menghani FXStreet

The EUR/JPY cross stages a goodish recovery from the 157.40-157.35 region, or over a one-month low touched on the first day of a new week and reverses a part of Friday's losses. Spot prices climb to a fresh daily peak during the early European session and currently trade just below mid-158.00s amid a broad-based Japanese Yen (JPY) weakness.

Official data published earlier today showed that Japan's economy grew at a slightly slower pace, by an annualized 2.9% in the April-June quarter as compared to a 3.1% rise in the preliminary estimate. This comes on top of sluggish consumer spending growth in July, which might complicate the Bank of Japan's (BoJ) plans to hike interest rates further in the coming months. Apart from this, a stable 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 straight month in July keeps the door open for another BoJ rate hike in 2024. Moreover, the 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 worries about a US economic downturn, along with persistent geopolitical tensions, should limit losses for the JPY and cap the EUR/JPY cross amid some follow-through selling around the shared currency.

Growing acceptance that the European Central Bank (ECB) will cut interest rates again in September in the wake of declining inflation in the Eurozone and a modest US Dollar (USD) strength turn out to be key factors weighing on the Euro. In the absence of any relevant market-moving economic releases, the fundamental backdrop warrants some caution before confirming that the EUR/JPY cross has formed a near-term bottom and positioning for any meaningful appreciating move.

Economic Indicator

Gross Domestic Product Annualized

The Gross Domestic Product (GDP), released by Japan’s Cabinet Office on a quarterly basis, is a measure of the total value of all goods and services produced in Japan during a given period. The GDP is considered as the main measure of Japan’s economic activity. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.

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