Ella 
EUR/JPY struggled to gain any meaningful traction and traded within a tight range in Asia on Wednesday. Spot prices are now trading around the 158.70 area, almost flat on the day but still close to the highest since September 2008 hit on Tuesday.
Ongoing fears of deteriorating economic conditions in China, coupled with resurgent fears of a more hawkish Fed, have dampened investor appetite for risky assets. This could be seen in the broader decline in Asian stock markets, providing some support for the safe-haven yen. In addition, the market expects that the recent weakening of the yen may trigger verbal intervention by the Japanese authorities or intervention in the foreign exchange market, which is negative for EUR/JPY.
Indeed, Japan’s top foreign exchange diplomat, Masato Kanda, said on Tuesday that he would take appropriate measures to deal with excessive volatility in the currency. Japanese Finance Minister Shunichi Suzuki, however, said authorities were not targeting the absolute level of the currency when intervening in the market. This, along with the wide divergence in monetary policy stances between the Bank of Japan and the European Central Bank, limits the downside for EUR/JPY, so caution should be exercised before betting on its corrective decline.
It is worth mentioning that the Bank of Japan is the only central bank in the world that maintains a negative benchmark interest rate. In addition, policymakers emphasized that the Bank of Japan’s July move to make yield curve control (YCC) more flexible, allowing 10-year JGB yields to rise to 1% was merely a technical adjustment to extend the duration of the stimulus . In contrast, the ECB has raised borrowing costs by a combined 425 basis points since last July, and markets still see the ECB raising rates one more time before the end of the year.
This suggests that the path of least resistance for EUR/JPY is to the upside. Still, range-bound action over the past week suggests traders are uncertain about the next direction for spot prices. Therefore, it is prudent to wait for the price to continue to rise and break through the 159 mark before betting on its short-term further rise. However, the above-mentioned fundamental background clearly favors the bulls and supports the prospect of further gains.
