EUR/JPY struggles near the mid-155.00 zone, the lowest level since August ahead of the BoJ meeting this week

• EUR/JPY falls for a second consecutive day and falls to a more than one-month low.
• Expectations of a hawkish BoJ continue to benefit the JPY and exert downward pressure.
• Euro gets support from weaker USD and should limit losses ahead of BoJ.

The EUR/JPY pair attracted sellers for the second consecutive day on Monday and dropped to its lowest level since early August below the 155.00 area during the Asian session. The decline is sponsored by the underlying bullish sentiment around the Japanese Yen (JPY), although it lacks follow-through buying ahead of the crucial Bank of Japan (BoJ) monetary policy meeting later this week.

Recent hawkish signals from Bank of Japan (BoJ) officials suggested that the central bank will raise interest rates further by the end of this year, which, in turn, is seen as benefiting the JPY and putting pressure on the EUR/JPY cross. In fact, BoJ board member Junko Nakagawa said earlier last week that the central bank will raise interest rates further if the economy and inflation move in line with its forecasts. Moreover, BoJ board member Naoki Tamura said last Thursday that the central bank needs to raise short-term rates by at least around 1% through fiscal 2026 to stably achieve the 2% inflation target.

This marks a major divergence from the European Central Bank’s (ECB) decision last week to cut interest rates for the second time in this cycle and indicates a downward path for borrowing costs in the coming months. This is seen as another factor behind the shared currency’s relatively underperformance and contributes to the tone offered around the EUR/JPY cross. That said, reports that ECB policymakers see a rate cut in October unlikely barring a major deterioration in growth prospects, coupled with a sustained US Dollar (USD), help the Euro gain some positive traction.

Apart from this, a generally positive tone in global equity markets caps any further appreciation of the safe-haven JPY and should limit the upside of the EUR/JPY cross. Traders could also refrain from placing aggressive bearish bets and opt for a wait-and-see approach ahead of the key central bank event risk – the much-awaited BoJ policy decision on Friday. The key focus will be on the BoJ policy outlook, which will play a key role in influencing the near-term JPY price dynamics and help market participants determine the currency’s next directional move.