EUR/JPY clings to gains near mid-172.00s, remains close to YTD peak amid a weaker JPY

• EUR/JPY attracts some dip-buyers and reverses the overnight pullback from a one-year top.
• Reduced BoJ rate hike bets and domestic political uncertainty continue to undermine the JPY.
• Resurgent USD demand weighs on the Euro, albeit doing little to hinder the pair's move up.

The EUR/JPY cross regains positive traction following the previous day's turnaround from the 173.25 area or a fresh one-year peak and sticks to its intraday gains through the first half of the European session on Thursday. Spot prices currently trade around mid-172.00s, up 0.20% for the day, and remain well supported by the prevalent selling bias surrounding the Japanese Yen (JPY).

Data released earlier today showed that Japan clocked a smaller-than-expected trade surplus in June as exports fell for the second straight month amid persistent headwinds from US trade tariffs. This comes on top of slowing economic growth, declining real wages, and signs of cooling inflation in Japan, which could complicate the Bank of Japan's (BoJ) policy normalization path. Apart from this, domestic political uncertainty has been a key factor behind the JPY's relative underperformance and lending support to the EUR/JPY cross.

Meanwhile, recent polls indicate that Japan's ruling coalition - the Liberal Democratic Party (LDP) and Komeito - might lose its majority in the Upper House election on July 20. The outcome could further heighten both fiscal and political risks in Japan and also complicate trade negotiations amid the looming US trade tariffs. In fact, US President Donald Trump issued notices to key trading partners last week, including Japan, which faces a punishing 25% tariff on exports to America amid stalled US-Japan trade talks.

Apart from this, reduced safe-haven demand is seen as another factor undermining the JPY's safe-haven status and acting as a tailwind for the EUR/JPY cross. The intraday move higher seems rather unaffected by the emergence of fresh selling around the shared currency, pressured by a broadly firmer US Dollar (USD). Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the spot prices is to the upside as the market focus now shifts to Japan's National CPI report on Friday.