• EUR/JPY edges lower on Tuesday as intervention fears offer some support to the JPY.
• Fiscal concerns and the BoJ rate hike uncertainty could limit further gains for the JPY.
• Expectations that the ECB is done cutting rates benefit the EUR and support the cross.

The EUR/JPY cross struggles to build on the previous day's positive move and ticks lower during the Asian session on Tuesday. Spot prices currently trade around mid-180.00s, down 0.10% for the day, though the downside potential seems limited.

The Japanese Yen (JPY) draws some support from speculations that authorities would step in to stem any further weakness in the domestic currency, which, in turn, is seen as a key factor acting as a headwind for the EUR/JPY cross. Japan's Finance Minister Satsuki Katayama, in the strongest warning to date, said on Friday that we will take appropriate action as needed against excess volatility and disorderly market moves, and also signaled chances of intervention. Adding to this, Takuji Aida, a member of a key government panel, said on Sunday that Japan can actively intervene in the currency market to mitigate the negative economic impact of a weak JPY.

Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda left the door open for a December rate hike and told the parliament that a weak JPY could push up inflation, which has remained above the BoJ's 2% target for well over three years. This is seen as another factor underpinning the JPY and weighing on the EUR/JPY cross. That said, concerns about Japan's worsening fiscal position and the uncertainty over the BoJ's policy tightening path hold back the JPY bulls from placing aggressive bets. In fact, Japan's cabinet approved a lavish ¥21.3 trillion economic stimulus package last week – the biggest since COVID-19 - and fueled worries about the supply of new government debt.

This keeps the yield on Japanese government bonds elevated. Furthermore, data released last week showed that Japan's economy contracted in Q3 for the first time in six quarters, which, in turn, could put pressure on the BoJ to delay raising interest rates. This warrants some caution before positioning for any meaningful JPY appreciation. The shared currency, on the other hand, draws some support from bets that the European Central Bank (ECB) is done cutting interest rates, which should further contribute to limiting the downside for the EUR/JPY cross. Traders now look to the release of Germany's final Q3 GDP print for some impetus and to grab short-term opportunities.