EUR/JPY rises to near 162.00 due to record trade deficit in Japan, Eurozone PMI eyed

EUR/JPY gains ground as Japan’s Trade Balance reported a deficit of ¥621.84 billion for July.
Reuters poll showed that 31 out of 54 economists predicted that the BoJ would increase borrowing costs by year-end.
The Euro receives support ahead of PMI data from the Eurozone and Germany.

Akhtar Faruqui FXStreet

EUR/JPY breaks its three-day losing streak, trading around 162.00 during the Asian hours on Wednesday. This upside of the EUR/JPY cross could be attributed to the tepid Japanese Yen (JPY) following the release of Trade Balance data on Wednesday.

Japan's Merchandise Trade Balance fell into a deficit of ¥621.84 billion in July, reversing the surplus of ¥224.0 billion reported in June and missing market estimates of a ¥330.7 billion shortfall. This marks the fifth deficit so far this year, as imports increased at a much faster pace than exports.

However, the downside of JPY could be restrained due to the growing likelihood of another near-term interest rate hike. 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.

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

In the Eurozone, traders expect the European Central Bank (ECB) to gradually lower interest rates. However, ECB officials have been cautious about committing to a specific rate-cut schedule, given concerns that inflationary pressures might pick up again.

On Tuesday, the Harmonized Index of Consumer Prices (HICP) data from the European Monetary Union (EMU) reported no month-on-month change for July, as anticipated. Meanwhile, the Core HICP fell by 0.2%, aligning with the decline seen in June.

Traders are likely to observe Purchasing Managers Index (PMI) data from the Eurozone and Germany scheduled for release on Thursday. HCOB Composite PMI for the Eurozone is expected to report a 50.1 reading, falling short of the previous reading of 50.2 reading.

(This story was corrected on August 21 at 07:50 GMT to say, in the last paragraph, that PMI data from the Eurozone and Germany are scheduled for release on Thursday, not Wednesday.)

Economic Indicator

Merchandise Trade Balance Total

The Merchandise Trade Balance Total released by the Ministry of Finance is a measure of balance amount between import and export. A positive value shows a trade surplus while a negative value shows a trade deficit. Japan is so much dependant on exports that the Japanese economy heavily relies on a trade surplus. Therefore, any variation in the figures influences the domestic economy. If a steady demand in exchange for Japanese exports is seen, that would turn into a positive.

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