- EUR/JPY fell to 157.20 in early European session on Wednesday, down 0.72% from the previous day.
- Japan's trade balance contracted less than expected in August, but imports and exports were worse than expected.
- Market participants will be closely watching Eurozone HICP inflation data due to be released on Wednesday.
The EUR/JPY cross was trading lower near the 157.20 level, snapping a second straight day of gains early in the European session on Wednesday. Weakened Japanese export and import data cast some doubt on Japanese demand on the back of rising wages, weighing on the Japanese Yen (JPY). Attention turns to the Bank of Japan (BoC) interest rate decision on Friday.
Japan's trade balance contracted less than expected in August, but exports and imports fell short of expectations. Japan's trade deficit widened to 695.3 billion yen in August from 628.7 billion yen in July, exceeding expectations of a deficit of 1.38 trillion yen. Meanwhile, exports grew 5.6% year-on-year in August, up from a 10.2% increase in the previous month and below the forecast of a 10.0% increase. Imports grew 2.3% in the same period, up from a 16.6% increase in July and below the consensus forecast of a 13.4% increase.
Economists expect the Bank of Japan to keep interest rates unchanged on Friday, but is likely to raise them again by the end of the year, according to a Reuters poll. Bank of Japan Governor Kazuo Ueda said the bank would continue to raise interest rates if the economy moves as the bank expects. Bank of Japan policy board member Naoki Tamura said on Thursday that the bank should raise interest rates to at least 1% as early as the second half of next fiscal year. The BOJ's hawkish stance could lead to a stronger yen in the short term, creating headwinds for EUR/JPY.
The euro zone is due to release Eurozone Consumer Price Index (HICP) data on Wednesday. The headline HICP is expected to have risen 2.2% year-on-year in August, while the core HICP is expected to have risen 2.8% for the same period. If the inflation data comes out better than expected, it could limit the decline of eurozone currencies.
