EUR/JPY returns to 162.50 as yen corrects with national CPI in focus

• EUR/JPY returns to near 162.50 as Japan’s trade deficit weighs on the yen.
• The BoJ is expected to further tighten monetary policy this year.
• Investors await a quick Eurozone PMI for August.

EUR/JPY bounces back sharply from an intraday low of 161.40 to near 162.50 in the European session on Wednesday. The cross bounces back strongly as the Japanese yen (JPY) corrects after the release of weak trade balance data for July.

Data early Wednesday showed Japan’s merchandise trade balance narrowed to a deficit of ¥621.84 billion after running in surplus in June as imports rose at a faster-than-expected pace.

However, the yen’s near-term outlook remains firm on expectations that the Bank of Japan (BoJ) may tighten monetary policy further this year. Expectations for more interest rate hikes by the BoJ strengthened following robust Q2 Gross Domestic Product (GDP) growth.

This week, investors will focus on Japan’s National Consumer Price Index (CPI) data for July, which will be released on Friday. The CPI report is expected to show that price pressures, excluding fresh food, rose 2.7 percent, up from the previous release of 2.6 percent.

Meanwhile, the euro (EUR) is performing strongly on expectations that the European Central Bank (ECB) will gradually cut interest rates. The ECB is expected to cut its key lending rates in September and again in the final quarter of this year.

On the economic front, investors await the Eurozone HCOB flash PMI data for August, which will be released on Thursday. Economists estimated that the composite PMI barely improved.