Euro fails at 179.50 as BoJ tightening hopes underpin Japanese Yen

The Euro (EUR) dropped below 179.00 against the Japanese Yen (JPY) on Friday, as a modest recovery following the European Central Bank's (ECB) meeting on Thursday did not gain enough momentum to surpass 179.50. Risk-averse sentiment, driven by the Middle East crisis and expectations of a Bank of Japan (BoJ) rate hike next week, restricted EUR/JPY rallies.

DBS Group Research analysts assert that the BoJ "is almost a done deal" to raise interest rates at their meeting on Sep 17-18, predicting a "hawkish 25bps hike" and a flexible pace of future rate hikes. Japanese data released on Friday indicated high factory prices, supporting the BoJ's monetary tightening. The Producer Price Index (PPI) for August showed a 7.6% year-over-year growth, slightly lower than the 7.7% in July but above expectations, indicating a deeper slowdown.

Meanwhile, the ECB maintained its benchmark deposit facility rate at 2.5%, as expected, and hinted at potential further rate hikes, stating that inflation will stay above the 2% target until at least 2027. EUR/JPY traded at 179.05, rebounding from 177.86 lows but showing corrective characteristics due to an overbought Relative Strength Index (14) after a 4% drop over two weeks.

Support lies at the September 8 low of 177.86, with further support near the 127.2% Fibonacci extension of the September selloff, around 175.60. On the upside, a rebound faces resistance at the July 31 high of 179.55, previously supported by bulls on Thursday. The next target is the September 4 high of 182.00. Japanese Yen emerged as the strongest currency against listed major currencies on Friday.