EUR/JPY Steady as BoJ Hike Expectations Counterbalanced by Global Risks

The EUR/JPY pair is trading around 185.70 on Monday, virtually unchanged from last week's closing price. The Japanese Yen has gained some support from recent inflation data, which showed Japan's National Consumer Price Index (CPI) rose 1.9% YoY in July, its fastest pace so far this year.

Core inflation accelerated to 1.8% YoY from 1.6% previously, reinforcing expectations of further monetary tightening by the Bank of Japan (BoJ). Markets are pricing in around an 82% chance of a September rate hike, up sharply from just 23% immediately before the July monetary policy meeting.

This shift in expectations has provided some support to the Japanese Yen and limited the upside potential for EUR/JPY. However, several factors continue to curb the Japanese Yen's appreciation, including concerns over Japan's deteriorating fiscal position and risks to the economy stemming from the prolonged conflict in the Middle East and disruptions in the Strait of Hormuz.

Meanwhile, expectations of tighter monetary policy from the European Central Bank (ECB) are providing support to the Euro, limiting the downside in EUR/JPY. Markets are pricing in a 95% chance of an ECB interest rate hike in September, according to the ECB Watch tool.