The EUR/JPY cross remains on the defensive around 166.55 during the early European trading hours on Monday. The Japanese Yen (JPY) extends a rally as traders raise their bets on the prospect of a rate hike by the Bank of Japan (BoJ) on Wednesday.
Market players await the BoJ monetary policy meeting on Wednesday for fresh catalysts. The growing speculation that a BoJ would raise interest rates and significantly reduce its monthly bond purchases continue to underpin the JPY against the Euro (EUR). Additionally, traders could potentially unwind their carry trades ahead of the BoJ's rate decision, which might lift the JPY.
Elsewhere, the escalating geopolitical risks in the Middle East might boost the safe-haven flows, benefiting the JPY. The Golan Heights attack on Saturday raised worries about a war between Israel and Hezbollah. Israel accuses Hezbollah of carrying out the strike on a football pitch, which killed at least 12 people, including children, and it has promised to react. However, Hezbollah denies being involved in the attack, according to the BBC on Sunday.
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