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09.09.2024 01:04 PM
EUR/JPY. Overview and Analysis

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The EUR/JPY pair shows a notable recovery from the monthly low reached on the first day of the new week, recouping some of Friday's losses amid the weakness of the Japanese yen.

According to official data released today, Japan's economy grew at an annualized rate of 2.9% from April to June, slightly slower than the preliminary estimate of 3.1%. This, combined with sluggish consumer spending growth in July, could complicate the Bank of Japan's plans to raise interest rates in the coming months. Additionally, stable stock market performance undermines the safe-haven yen, providing a tailwind for the EUR/JPY pair.

However, July saw a second consecutive month of unexpected growth in real wages in Japan, suggesting the possibility of another rate hike in 2024. Moreover, last week, Bank of Japan Governor Kazuo Ueda reiterated that the central bank will continue to raise interest rates if the economy and inflation align with the bank's forecast. Meanwhile, renewed concerns about a U.S. economic slowdown, coupled with persistent geopolitical tensions, should limit the yen's losses. Ongoing geopolitical tensions and some subsequent selling of the common currency may also cap EUR/JPY's gains.

Growing expectations that the European Central Bank may again cut interest rates in September due to declining inflation in the Eurozone, along with a modest strengthening of the U.S. dollar, are key factors putting pressure on the euro. In the absence of significant market-moving economic releases, caution is advised before confirming that the EUR/JPY pair has formed a short-term bottom and is poised for a meaningful rise.

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