EUR/JPY bulls await move beyond 166.00, 200-day SMA breakout in play amid notable JPY weakness

• EUR/JPY jumps to a three-month top amid the heavily offered tone surrounding the JPY.
• Japan's political development raises doubts over more BoJ rate hikes and weighs on the JPY.
• Bets for aggressive ECB policy easing undermine the Euro and cap the upside for the cross.

The EUR/JPY cross opens with a modest bullish gap on Monday and touches a three-month top during the Asian session, albeit it struggles to capitalize on the move beyond the 166.00 mark. Spot prices currently trade around the 159.65-159.70 region, up over 0.75% for the day, and now seem to have confirmed a bullish breakout above a technically significant 200-day Simple Moving Average (SMA). 

The loss of a parliamentary majority for Japan's ruling coalition in weekend elections adds to a layer of uncertainty over the Bank of Japan's (BoJ) rate-hike plans. This, along with a generally positive risk tone, weighs heavily on the safe-haven Japanese Yen (JPY) and turns out to be a key factor that provides a goodish lift to the EUR/JPY cross. That said, the recent verbal intervention by Japanese authorities holds back the JPY bears from placing aggressive bets. 

In fact, Japan's Economy Minister Ryosei Akazawa said on Friday that it is important for currencies to move in a stable manner reflecting fundamentals and that a weak yen has various impacts on the economy. This comes on top of the comments from Japan's vice finance minister for international affairs, Atsushi Mimura, earlier this month, saying that excess volatility in the market is undesirable and that authorities are closely watching FX moves with a high sense of urgency.

Apart from this, some safe-haven demand stemming from the ongoing conflicts in the Middle East and the risk of a broader war in the region acts as a tailwind for the JPY. The shared currency, on the other hand, is undermined by firming expectations for a more aggressive policy easing by the European Central Bank (ECB) amid signs of easing inflationary pressures and economic weakness. This contributes to keeping a lid on the EUR/JPY cross and warrants caution for bulls. 

Nevertheless, a breakout and acceptance above the very 200-day SMA, for the first time since late July supports prospects for a further near-term appreciating move. This, in turn, suggests that any intraday pullback might be seen as a buying opportunity and remain limited near the said resistance breakpoint amid absent relevant market-moving economic releases and ahead of the BoJ monetary policy meeting later this week.