EUR/JPY bounces back to 162.50 as Yen corrects with National CPI in focus

• EUR/JPY recovers to near 162.50 as Japan’s Trade Deficit weighs on the Yen.
• The BoJ is expected to tighten its monetary policy further this year.
• Investors await flash Eurozone PMI for August.

The EUR/JPY pair rebounds sharply from the intraday low of 161.40 to near 162.50 in Wednesday’s European session. The cross bounces back strongly as the Japanese Yen (JPY) corrects after the release of the weak Trade Balance data for July.

The data came in early Wednesday showed that Japan’s Merchandise Trade Balance fell into a deficit of ¥621.84 billion after remaining surplus in June as imports grew at a faster than expected pace.

However, the near-term outlook of the Yen remains firm on expectations that the Bank of Japan (BoJ) could tighten its monetary policy further this year. The expectations for more interest rate hikes by the BoJ strengthened after the robust Q2 Gross Domestic Product (GDP) growth.

This week, investors will focus on the Japan’s National Consumer Price Index (CPI) data for July, which will be published on Friday. The CPI report is expected to show that price pressures excluding fresh food rose by 2.7%, higher than the former release of 2.6%.

Meanwhile, the Euro (EUR) performs strongly on expectations that the European Central Bank (ECB) will cut interest rates gradually. The ECB is expected to reduce its key borrowing rates in September and one more time in the last quarter this year.

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