EUR/JPY attracts some sellers below 157.50 ahead of Eurozone inflation data

• EUR/JPY edges lower to 157.20 in Wednesday’s early European session, down 0.72% on the day. 
• Japan’s trade balance shrank less than expected in August, but  Imports and Exports were worse than estimated. 
• Market players will keep an eye on the Eurozone HICP inflation data on Wednesday. 

The EUR/JPY cross weakens near 157.20, snapping to a two-day winning streak during the early European session on Wednesday. The Japanese weaker Imports and Exports reading raises some doubts over demand in Japan on the back of strong wages, which weighs on the Japanese Yen (JPY). The Bank of Japan (BoC) interest rate decision on Friday will be closely watched.

Japan’s Trade Balance shrank less than expected in August, although Imports and Exports missed estimations. Japan’s trade deficit widens to 695.3 billion yen in August from 628.7 billion yen in July, better than expectations for a deficit of 1.38 trillion yen. Meanwhile, Exports grew 5.6% YoY in August versus 10.2% prior, weaker than the 10.0% expected. Imports rose 2.3% in the same period from a 16.6% jump in July, below the consensus of a 13.4% rise. 

Economists from the Reuters poll expect the BoJ to leave the interest rate unchanged on Friday, but will likely raise interest rates again before the year ends. BoJ Governor Kazuo Ueda said that the central bank will continue to raise rates if the economy moves in line with its forecasts. BoJ policymaker Naoki Tamura stated on Thursday that the central bank should raise interest rates to at least 1% as early as the second half of the next fiscal year. The hawkish stance from the Japanese central bank might lift the JPY and create a headwind for EUR/JPY in the near term. 

On the Euro front, the Eurozone Harmonized Index of Consumer Prices (HICP) data is due on Wednesday. The headline HICP is projected to show an increase of 2.2% YoY in August, while the core HICP is forecasted to show a rise of 2.8% in the same period. If the inflation data shows a hotter than expected outcome, this could cap the downside for the shared currency.