The EUR/JPY cross broke its three-day losing streak and traded around 162.00 during the Asian hours on Wednesday. This increase in the EUR/JPY cross can be attributed to the weakening Japanese Yen following the release of Trade Balance data. Japan’s Merchandise Trade Balance fell into a deficit of ¥621.84 billion in July, reversing the surplus reported in June. Imports increased at a faster pace than exports, leading to the fifth deficit this year. Despite this, the downside of the JPY may be limited due to expectations of another interest rate hike by the Bank of Japan (BoJ) by the end of the year.
A Reuters poll revealed that 31 out of 54 economists predicted that the BoJ would raise borrowing costs by the year-end. The median forecast for the end-of-year rate is 0.50%, marking a 25 basis point increase. BoJ Governor Kazuo Ueda is set to appear in parliament on Friday to discuss the central bank’s decision to raise interest rates last month. In contrast, traders expect the European Central Bank (ECB) to gradually lower interest rates, but ECB officials remain cautious about committing to a specific rate-cut schedule due to concerns about inflationary pressures.
On Tuesday, the Harmonized Index of Consumer Prices (HICP) data from the European Monetary Union (EMU) reported no month-on-month change for July, with the Core HICP falling by 0.2%. Traders are now looking ahead to PMI data from the Eurozone and Germany set to be released on Thursday. The HCOB Composite PMI for the Eurozone is expected to report a 50.1 reading, slightly lower than the previous reading of 50.2.
The Merchandise Trade Balance Total released by the Ministry of Finance measures the balance amount between import and export, with a positive value indicating a trade surplus and a negative value showing a deficit. Japan heavily relies on exports, so any fluctuations in these figures can significantly impact the domestic economy. Traders are closely monitoring the demand for Japanese exports to gauge the impact on the trade balance and economic outlook. The Trade Balance data is released monthly and is a crucial economic indicator for Japan’s economy.
