EUR/JPY rises above 172.00 as traders expect ECB to pause easing cycle

• EUR/JPY appreciates due to a cautious tone surrounding the ECB policy outlook.
• The Euro gains support from improved market sentiment fueled by hopes of a possible end to the Ukraine-Russia war.
• Traders remain uncertain regarding the Bank of Japan's interest rate hikes.

EUR/JPY extends its gains for the second successive session, trading around 172.10 during the Asian hours on Monday. The currency cross continues to gain ground as the Euro (EUR) receives support from the prevailing expectations of the European Central Bank (ECB) pausing its easing cycle in September.

Additionally, the Euro receives support from improved market sentiment due to the possibility of the Ukraine-Russia war coming to an end. News of a possible Trump-Putin meeting next week leads some to expect a deal that could halt hostilities in Ukraine.

On policy outlook, the European Central Bank (ECB) left its key rates unchanged at its last meeting, reflecting greater confidence that inflation is stabilizing near the 2% target. The Governing Council has reiterated its "meeting-by-meeting and data-dependent" stance, choosing to pause and assess the impact of global trade uncertainty and US tariffs on the eurozone economy.

The upside of the EUR/JPY cross could be limited as the Japanese Yen (JPY) gains ground amid mixed sentiment surrounding the Bank of Japan (BoJ) interest rate hikes. The BoJ Minutes for the July meeting showed that board members maintained their view that further interest rate increases remain appropriate, despite heightened uncertainty surrounding tariffs.

However, BoJ's Summary of Opinions showed last week that policymakers remain uncertain about the potential negative impact of higher US tariffs on the domestic economy, tempering expectations for an immediate rate hike.