EUR/JPY rises near 162.00 on Japan’s record trade deficit, Eurozone PMI eyes

• EUR/JPY is gaining ground as Japan’s trade balance reported a deficit of ¥621.84 billion for July.
• The Reuters poll showed 31 out of 54 economists predicted the BoJ would raise borrowing costs by the end of the year.
• Euro gains support ahead of Eurozone and German PMI data scheduled for release on Wednesday.

EUR/JPY snaps its three-day losing streak, trading around 162.00 during Asian hours on Wednesday. This EUR/JPY cross advantage could be attributed to the warm Japanese yen (JPY) after the release of trade balance data on Wednesday.

Japan’s merchandise trade balance slipped to a deficit of ¥621.84 billion in July, reversing the ¥224.0 billion surplus reported in June and missing market estimates of a ¥330.7 billion deficit. This marks the fifth deficit this year as imports grew at a much faster pace than exports.

However, JPY’s downside could be narrowed due to the increasing likelihood of another interest rate hike in the near term. Traders are also anticipating Bank of Japan (BoJ) Governor Kazuo Ueda’s appearance in parliament on Friday, where he will discuss the central bank’s decision last month to raise interest rates.

More than half of economists expect the Bank of Japan (BoJ) to raise interest rates again by the end of the year, according to a Reuters poll published on Wednesday. In the August 13-19 survey, 31 out of 54 economists predicted the BoJ would raise borrowing costs by the end of the year. The average forecast for the year-end rate is 0.50%, marking an increase of 25 basis points.

In the eurozone, traders expect the European Central Bank (ECB) to gradually lower interest rates. However, ECB officials were cautious about committing to a specific rate cut program, given fears that inflationary pressures could rekindle.

On Tuesday, European Monetary Union (EMU) Harmonized Index of Consumer Prices (HICP) data reported no monthly change for July, as expected. Meanwhile, the core HICP fell by 0.2%, in line with the decline seen in June.

Traders are likely to watch purchasing managers’ index (PMI) data from the euro zone and Germany scheduled for release on Thursday. The Eurozone HCOB Composite PMI is expected to report a reading of 50.1, down from the previous reading of 50.2.