Ella 
EUR/JPY struggled to capitalize on the positive moves of the past two days and faced some selling pressure on Wednesday. However, spot prices managed to rebound around 40-50 points from the intraday lows hit earlier in the European session and are now trading slightly lower intraday, trading around the 158.15-158.20 area, down less than 0.15% for the day.
Hawkish comments from European Central Bank (ECB) Governing Council member Klaas Knot attracted some buyers, helping EUR/JPY rebound from around 157.75. Investors betting on a rate hike next week may be underestimating the likelihood of a hike, Knott told Bloomberg. This in turn overturned market expectations that the rate hike cycle was about to pause and prompted some intraday short covering in the pair.
However, Knot added that raising interest rates is a possibility, not a certainty. This, coupled with a verbal intervention from Japan’s top currency diplomat Masato Kanda, restrained further upside in the EUR/JPY cross. In fact, Kanda warned of the recent sell-off in the Japanese yen (JPY) and said authorities would not rule out any options if speculative moves in currency markets persist. In addition, cautious market sentiment is conducive to safe-haven demand for the yen, which also caused the yen crosses to fall modestly.
Business activity in China’s services sector expanded at the slowest pace in eight months, a private survey showed on Tuesday, adding to concerns about worsening conditions in the world’s second-largest economy. In addition, ongoing Sino-US trade tensions have also weakened investor appetite for risk assets. However, the downside of EUR/JPY is still limited due to the dovish stance of the Bank of Japan, which remains the only central bank in the world to maintain negative interest rates.
In addition, Bank of Japan policymaker Hajime Takata said earlier today that given the very high uncertainty about the outlook, the central bank must patiently maintain loose policy and ensure that the ultra-loose policy setting is extended until next summer. This marks a significant divergence compared to other major central banks, including the ECB, which may continue to weaken the yen and suggests that the path of least resistance for EUR/JPY is to the upside. Therefore, any meaningful corrective dip could be viewed as a buying opportunity.
