Ella 
In early European trading on Monday, EUR/JPY remained on the defensive around 166.55. The Japanese yen (JPY) extended gains as traders increased bets on the prospect of the Bank of Japan (BOJ) raising interest rates on Wednesday.
Market participants are awaiting fresh catalysts from the Bank of Japan’s monetary policy meeting on Wednesday. Growing speculation that the Bank of Japan will raise interest rates and significantly reduce its monthly bond purchases continues to support the yen against the euro (EUR). Additionally, traders may unwind carry trades ahead of the Bank of Japan’s rate decision, which could boost the yen.
Elsewhere, escalating geopolitical risks in the Middle East could boost safe-haven flows, benefiting the yen. Saturday’s attack in the Golan Heights raised fears of a war between Israel and Hezbollah. Israel blamed Hezbollah for an attack on a football stadium that killed at least 12 people, including children, and pledged a response. However, Hezbollah denied involvement in the attack, the BBC reported on Sunday.
On the other hand, investors expect the European Central Bank (ECB) to cut interest rates in the near term, which has put some selling pressure on the common currency. European Central Bank President Christine Lagarde said more data is needed to confirm continued deflationary trends and gain the ECB’s trust. Key economic data from the euro zone this week may provide some hints on where interest rates will go this year.
Preliminary second-quarter gross domestic product (GDP) figures for Germany and the euro zone will be released on Wednesday, along with German consumer price index (CPI) for July. Any signs of stronger economic growth or inflation could boost the euro and limit the pair’s downside in the short term.
