EUR/JPY bulls step in to start off the week

• EUR/JPY is bid in the open this week.
• The central banks are in focus as a driving force. 

EUR/JPY is treading near 0.5% higher on the day as the bulls step in following Friday's drop. Risk sentiment improved but the yen was correcting higher as the US dollar lost its footing. At the time of writing, the cross is trading at 143.85 and between a low of 143.37 and 143.87.

Markets in China, Hong Kong and Korea are closed for the harvest moon/mid-autumn festival so it is otherwise quiet to start the week. On Friday, however, the dollar fell to a more than one-week low ahead of a US inflation report that could determine the size of the Federal Reserve's rate hike at this month's policy meeting. Nevertheless, equities squeezed higher, albeit without obvious news or data catalysts. The US dollar lost safe haven demand, sliding against all G10 currencies on the day. The yen, on the other hand, has been on track for its worst year on record, prompting the strongest warnings to date from senior Japanese government officials aimed at stemming the slide. 

As for the euro, the European Central Bank recently hiked rates 75 bp, as expected and leaves the market expecting more over the next several meetings, adding that it will regularly reevaluate the policy pate and take a meeting-by-meeting approach.

Madame Lagarde's press conference was key, analysts at Brown Brothers Harriman argued.''She said there were different views but the decision was unanimous. Most importantly, she said 75 bp was not the norm but that the large deviation of inflation from target justifies front-loading rate hikes.''

''Lagarde said future rate decisions will be made meeting by meeting and data-dependent.  When asked about how far the ECB is likely to tighten, she said she did not know what the terminal rate was but did say that current rates are “far away” from the level that will return inflation to target. ''

The analysts argued that higher-than-expected August inflaiton readings certainly make the case for more aggressive tightening. ''While the energy crisis adds another wrinkle to the process, we think it is too early yet for it to impact ECB policy right now.''