EURJPY calmly retraced from the upper line of the trend channel to the middle of the channel over a two-month period. During this time, the ECB raised the interest rate once more, possibly for the final time, while the BOJ attempted to manage the yield curve without causing significant damage to the JPY. According to Kyodo News, the BOJ is considering raising the inflation forecast to 3%. The BOJ meeting is scheduled for the end of October. If this news comes to fruition, the new inflation forecast might provide the BOJ with enough flexibility to further normalize policy, potentially by increasing the 10-year bond rate limit above 1% and alleviating some of the pressure on the JPY.
EURJPY tested the middle point of the uptrend channel last week and received some support from it. Now, it is testing the short-term downtrend with the support of a recovering EUR. If EURUSD stages a comeback after falling more than 6%, the short-term trend of EURJPY could be broken, potentially leading to another move towards 160, followed by the upper channel line at 163. However, a policy normalization move from the BOJ could change the trajectory towards the lower line of the channel. For possible downward movements, 154.50 could serve as a key support level and a potential signal point for further downside if broken.
