EUR/JPY hover right below yearly highs at 173.25 supported by ECB's hawkishness

• The Euro reversed earlier losses on Thursday as ECB's Lagarde hinted at a larger rate cut pause.
• EUR/JPY's rally is giving signs of exhaustion, but Yen weakness keeps downside attempts limited.
• Risk appetite and political uncertainty in Japan are we¡ighing on the Japanese Yen.

The Euro downside attempts found buyers at the 172.50 area earlier on Friday, which sent the pair back to the 172.90 area, at a short distance to the one-year highs of 173.25.

The pair is on track for a nine-week rally, which is starting to give signs of exhaustion. The large wicks off the daily chart's candles highlight a hesitating market, and the bearish divergence in the 4-hour chart points in the same direction, but the hawkish remarks by ECB President Lagarde after Thursday's meeting are keeping ears in check for now.

EUR/JPY 4-Hour Chart

On Thursday, the European Central Bank left rates unchanged as widely expected. Beyond that, the optimistic growth outlook reflected in Lagarde's comments prompted investors to temper their hopes for further monetary easing this year. The Euro appreciated across the board following the event.

Risk appetite and Political uncertainty are weighing on the Yen

The Japanese Yen, on the other hand, is struggling due to a mix of moderate risk appetite, boosted by deals from the US and some of its main trading partners, and growing political uncertainty in Japan.

The Bank of Japan is in a challenging position. Tokyo CPI data revealed a slight decline in inflation, but the political uncertainty, amid Prime Minister Ishiba's weakness after the defeat in last weekend's elections, hinders further monetary policy decisions.

Against this background, investors are dialing down hopes of further rate hikes in the near-term, and this is likely to act as an additional headwind for the Yen.