• EUR/JPY holds in bullish territory as markets await the BoJ.
• The Fed chair is the first major risk or the cross. 

EUR/JPY is flat in the Asan session so far sticking to a narrow 145.04 and 145.20 range. The pair has been drifting higher over the course of the year so far driven by the US Dollar fundamentals for the most part but the Yen has also played a role domestically. 

Firstly, the Euro and US Dollar battle has been dominated by Federal Reserve policy. This week's testimony by Jerome Powell, who is the chairman of the Fed,  will be watched for any new signals on whether the U.S. central bank could reaccelerate the pace of rate hikes in response to the recent data. After delivering a series of 50bp hikes last year, the Fed has raised interest rates by 25 basis points each at its last couple of meetings. Around these meetings, however, data has come in hot and Fed funds futures traders are pricing in a 76% probability the Fed will raise rates by 25 basis points at its March 21-22 meeting, and a 24% likelihood of a 50 basis points increase. 

However, the EUR has had its own fundamental backdrop to traverse in recent months.  ''A build-up of EUR long positions late last year and into January reflected the softening in European gas prices and a strengthening in the view that Germany could avoid recession this year,'' analysts a Rabobank said. ''Germany may still suffer a technical recession in Q4 2022/Q1 2023, but at least more recent data are indicating resilience in the economy.  However, ‘resilient’ is not ‘strong’ and the market is facing these data releases with longer EUR positions than at the end of last year.  This suggests that the hawkish rhetoric of the ECB may struggle to coax the EUR significantly higher particularly given the recent buoyancy of the greenback,'' the analysts added. 

Meanwhile, the next BoJ policy meeting is due on March 10 and it will be Kuroda’s last where markets suspect that he will trigger the commencement of policy normalization with an adjustment of YCC.  ''However, this is unlikely without the results of the spring wage talks,'' the analysts at Rabobank argued. ''It is our view that the BoJ will take a slow and cautious approach to policy and that a loosening of YCC will be the initial element of any reduction in policy loosening this year.  We see scope for USD/.JPY to move to 125 on a 12-month view.''