EUR/JPY rebounds from 156.00, downside seems favored as threats of BoJ’s intervention loom

The EUR/JPY pair has attempted a recovery move after a perpendicular sell-off to near 156.00 in the London session. The cross is expected to deliver more downside below 156.00 as threats of intervention in the currency markets by the Bank of Japan (BoJ) or other Japanese diplomats are higher.

The Japanese Yen has depreciated to 145.00 against the US Dollar and a poll from Reuters showed that an intervention by the BoJ could come at these levels. Also, there has been a verbal communication from Japan's top financial diplomat Masato Kanda that authorities were in close contact with US Treasury Secretary Janet Yellen and other overseas officials "almost every day" on currencies and broader financial markets.

Meanwhile, rising wages in Japan are strengthening demand-driven triggers to maintain inflation steadily above 2%. BoJ Governor Kazuo Ueda has yet not conveyed a sign of a tweak in the negative interest rates and Yield Control Curve (YCC).

On the Eurozone front, upbeat German Factory Orders data (May) have provided some strength to the Euro bulls. Monthly economic data expanded by 6.4% against expectations of 1.5%. In April, Factory Orders were contracted by 0.4%. On an annualized basis, Factory Orders have contracted by 4.3% against a prior contraction of 9.9%.

Softening of the preliminary Eurozone inflation due to lower oil prices has provided some relief to the European Central Bank (ECB), however, further policy-tightening is in the pipeline as the journey towards 2% inflation is far from over. ECB President Christine Lagarde has already cleared that more interest rate hikes are appropriate.