• EUR/JPY scales higher for the second successive day and climbs to over a two-week high.
• The BoJ’s dovish stance continues to weigh on the JPY and acts as a tailwind for the cross.
• Expectations that the ECB will soon end its rate-hiking cycle might cap any further gains.

The EUR/JPY cross builds on the previous day's goodish rebound from the 155.80 region, or a one-week low and gains strong follow-through positive traction for the second successive day on Tuesday. The momentum lifts spot prices to over a two-week high, around mid-157.00s during the Asian session and is sponsored by the heavily offered tone surrounding the Japanese Yen (JPY).

Data released earlier today showed that real wages in Japan fell for a 15th straight month in June and nominal pay growth also slowed, reaffirming expectations that the Bank of Japan (BoJ) will stick to its dovish stance. This, in turn, is seen weighing on the JPY and providing a goodish lift to the EUR/JPY cross. It is worth recalling that the Bank of Japan (BoJ) has emphasised that sustainable pay hikes is a prerequisite to consider exiting easy policies and dismantling its massive monetary stimulus.

Moreover, the BoJ's Summary of Opinions released on Monday revealed that policymakers backed the case for the need to patiently continue with the current monetary easing towards achieving the price stability target. This comes after the Japanese central bank intervened to cool the speed of the rise in the benchmark 10-year Japanese government bond yield, which shot to a fresh nine-year peak last Thursday, and continues to undermine the JPY, though a softer risk tone could help limit losses.

Apart from this,  expectations that the European Central Bank (ECB) will halt its streak of nine consecutive interest rate hikes in September might keep a lid on any further gains for the EUR/JPY cross. In fact, the ECB, in its economic bulletin published on Friday, noted that the underlying inflation in the region likely peaked during the first half of 2023. Moreover, Fitch Ratings said on Friday that falling Euro Zone inflation puts ECB rates peak within sight. This warrants some caution for bullish traders.

The aforementioned mixed fundamental backdrop makes it prudent to wait for sustained strength and acceptance beyond the 158.00 mark, or the highest level since September 2008 touched last month, before positioning for any further gains. Traders now look to the release of the final German CPI print, which might influence the shared currency. Apart from this, the broader market risk sentiment might contribute to producing short-term trading opportunities around the EUR/JPY cross.

Technical levels to watch