• EUR/JPY catches aggressive bids after the BoJ decided to leave its policy setting unchanged.
• A softer risk tone lends some support to the safe-haven JPY and caps the upside for the cross.
• The lack of hawkish signals from the ECB holds back the Euro bulls from placing fresh bets.

The EUR/JPY cross stages a solid intraday recovery from its lowest level since mid-June touched this Friday and spikes to a fresh daily high after the Bank of Japan (BoJ) announced its policy decision. The strong intraday rally, however, fizzles ahead of the 155.00 psychological mark, dragging spot prices back below mid-153.00s in the last hour.

The Japanese Yen (JPY) weakens across the board in reaction to the BoJ's decision to leave its current accommodative monetary policy settings unchanged, which turns out to be a key factor that prompts aggressive short-covering around the EUR/JPY cross. Spot prices rally nearly 300 pips intraday and for now, seem to have snapped a four-day losing streak, reversing a major part of the previous day's heavy losses. That said, a slight deterioration in the global risk sentiment helps limit any further losses for the safe-haven JPY.

Moreover, bulls seem reluctant to place aggressive bets around the shared currency as the European Central Bank (ECB) did not provide any explicit forward guidance about upcoming moves, raising the possibility of a potential pause in September. In fact, the ECB noted that inflation, though continues to decline, is still expected to remain too high for too long. However, the central bank said that the Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the EUR/JPY pair's recent sharp pullback from the 158.00 mark, or its highest level since September 2008 touched last Friday has run its course. Nevertheless, the cross remains on track to end the week deep in the red