EUR/JPY struggles to build on its recovery from multi-month low beyond mid-157.00s

• EUR/JPY rebounds over 80 pips from a multi-month low touched earlier this Friday.
• IMF's warning of spillovers from rising foreign market volatility weighs on the JPY.
• The divergent BoJ-ECB policy outlook keeps a lid on any further gains for the cross.

The EUR/JPY cross stages a goodish intraday recovery from the 156.75 area, or its lowest level since early December touched earlier this Friday and for now, seems to have snapped a two-day losing streak. The momentum lifts spot prices back above mid-157.00s during the Asian session and is sponsored by the emergence of some selling around the Japanese Yen (JPY).

A senior International Monetary Fund official said on Friday that Japan's services inflation remains below the 2% target, which is why it remains appropriate for the Bank of Japan (BoJ) to maintain accommodative monetary policy. This, in turn, weighs on the JPY and assists the EUR/JPY cross to rebound around 85 pips from the daily low. That said, the growing acceptance that the BoJ will maintain its stance to steadily push up borrowing costs helps limit any further JPY depreciation.

In fact, Kazuhiro Masaki, Director General of the BoJ's monetary affairs department, said on Thursday that the central bank will continue to raise interest rates if underlying inflation accelerates toward its 2% target as projected. This marks a big divergence in comparison to the European Central Bank's (ECB) dovish stance. Adding to this concerns that US President Donald Trump would slap tariffs on goods from the European Union undermine the Euro and cap the EUR/JPY cross. 

Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any further appreciating move. Even from a technical perspective, the recent repeated failures near the very important 200-day Simple Moving Average (SMA) and a subsequent decline below the 160.00 psychological mark confirmed a bearish multiple-top breakdown, suggesting that the attempted recovery is likely to get sold into.