EUR/JPY retakes 161.00 mark, moves closer to multi-week top touched on Friday

• EUR/JPY attracts fresh buyers on Monday and moves back closer to last week’s swing high.
• Dovish BoJ's remarks, along with a positive risk tone, undermine the JPY and offer support.
• Expectations for an imminent shift in the BoJ’s policy and ECB rate cut bets cap the upside.

The EUR/JPY cross regains positive traction on the first day of a new week and climbs back above the 161.00 round-figure mark during the Asian session. Spot prices remain well within the striking distance of over a two-week high touched on Friday and seem poised to prolong the recent appreciating move from the vicinity of the 158.00 mark, or the monthly trough.

Last week's dovish remarks by the Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, saying that aggressive tightening is unlikely even after an exit from negative interest rate policy, continue to undermine the Japanese Yen (JPY). Apart from this, a generally positive risk tone further contributes to safe-haven JPY's relative underperformance and turns out to be another factor lending support to the EUR/JPY cross.

Expectations that Chinese authorities will do more to stimulate the economy, along with easing fears about a further escalation of geopolitical tensions in the Middle East, remain supportive of the recent risk-on rally across the global equity markets. In fact, the Israel military said on Monday that it had concluded a series of strikes in southern Gaza days after Prime Minister Benjamin Netanyahu rejected a ceasefire proposal from Hamas.

That said, growing acceptance that the BoJ will eventually abandon its ultra-loose monetary policy settings after the outcome of annual wage negotiations in March should help limit the downside for the JPY. Apart from this, rising bets that the European Central Bank (ECB) will start cutting interest rates at the start of the second quarter might hold back bulls from placing fresh bets around the shared currency and cap the EUR/JPY cross.

The bets were reaffirmed by a fall in German inflation, which eased to the 3.1% YoY rate in January from the 3.8% in the previous month. Adding to this, ECB Governing Council member Fabio Panetta said on Saturday that the moment is fast approaching for the central bank to cut interest rates. Panetta added that timely and gradual steps could help to reduce ensuing volatility in financial markets and the economy.

This, in turn, warrants caution before positioning for any further appreciating move in the absence of any relevant market-moving economic releases on Monday. Moving ahead, investors now look to the first estimate of the fourth-quarter GDP growth figures from the Eurozone and Japan, due for release on Wednesday and Thursday, respectively, which, in turn, should provide a fresh impetus to the EUR/JPY cross.

Technical levels to watch