EUR/JPY trims a part strong intraday gains, manages to hold above 159.00 mark

• EUR/JPY gains strong positive traction, albeit it struggles to find acceptance above the 160.00 mark.
• The risk-on impulse undermines the safe-haven JPY and prompts short-covering around the cross.
• The divergent BoJ-ECB policy outlook warrants some caution before positioning for further upside.

The EUR/JPY cross builds on the previous day's goodish bounce from the 154.40-154.35 region, or the YTD low and scales higher during the Asian session on Tuesday. Spot prices, however, retreat nearly 100 pips from the daily top and currently trade around the 159.25-159.20 region, still up over 0.80% for the day.

A positive turnaround in the risk sentiment – as depicted by a relief rally across the global equity markets – undermines demand for the safe-haven Japanese Yen (JPY) and prompts some follow-through short-covering around the EUR/JPY cross. That said, a combination of factors helps limit deeper JPY losses, which, along with the divergent Bank of Japan (BoJ)-European Central Bank (ECB) policy expectations, fails to assist spot prices to capitalize on the strength beyond the 160.00 psychological mark.

Against the backdrop of China's economic woes, the incoming US macro data suggested that the world's largest economy was slowing faster than initially expected. This, along with geopolitical risks stemming from the ongoing conflicts in the Middle East, should keep a lid on the market optimism. Furthermore, bets that the BoJ will tighten monetary policy again, bolstered by a rise in Japan's real wages in June for the first time in more than two years, contribute to capping gains for the EUR/JPY cross. 

Official data released earlier today showed that Japan's inflation-adjusted real wages increased by 1.1% in June, while nominal pay grew by 4.5% or the fastest pace in nearly three decades. Moreover, public broadcaster NHK reported that the Japanese labour ministry has decided to raise the national average minimum wage by about 5% – the biggest ever jump. This bodes well with the BoJ's plan to steadily raise interest rates and warrants some caution before placing bullish bets around the EUR/JPY cross.