EUR/JPY reached a multi-year peak on Friday. The cross pair is entering a bullish consolidation phase, just below its highest level since September 2008.

Speculation and expectations that Japanese authorities will intervene in the currency market to support the national currency are preventing traders from placing new optimistic bets on the cross. Moreover, speculation that, following easing inflationary pressure and increasing recession fears, the European Central Bank will halt its series of nine consecutive rate hikes in September also limits the cross's growth.

Nevertheless, the dovish stance taken by the Bank of Japan, which remains the only central bank in the world supporting a negative base interest rate, helps limit the decline of the EUR/JPY pair. Even the Bank of Japan's policy adjustment in July, which made the Yield Curve Control (YCC) policy more flexible and helped raise the yield on 10-year Japanese government bonds to 1%, couldn't bolster the Japanese yen.

Weak wage data from Japan released this week confirmed that the Bank of Japan will maintain negative interest rates until the end of the year. Such a fundamental backdrop showcases a significant divergence in the monetary policies of these countries, given that since July of the previous year, the ECB has increased borrowing costs by a total of 425 basis points.

Consequently, the policy divergence between the Bank of Japan and the ECB suggests that the path of least resistance for the EUR/JPY pair leans towards growth.