EUR/JPY drops to near 159.50 as traders brace for ECB rate decision

• EUR/JPY loses traction to near 159.50 in Wednesday’s Asian session. 
• The Japanese PPI came in stronger than expected, boosting the JPY.
• The uncertainty over how soon the BoJ could raise rates might cap the downside for the cross.

The EUR/JPY cross attracts some sellers to around 159.50 during the early European session. The Japanese Yen (JPY) strengthens against the Euro (EUR) after the stronger-than-expected Japanese Producer Price Index (PPI) for November. The European Central Bank (ECB) interest rate decision will be in the spotlight on Thursday. 

The preliminary reading by the Bank of Japan (BoJ) showed on Wednesday that the country’s Producer Price Index (PPI) increased by 0.3% MoM in November, better than the 0.2% expected. On an annual basis, the PPI rose by 3.7% YoY during the same reported period, above the market consensus of 3.4%. 
 
Furthermore, the expectation that the ECB will implement aggressive interest rate cuts to prop up the faltering regional economy could weigh on the shared currency. The ECB is widely expected to cut the deposit facility by another 0.25% to 3.00%. This expectation aligns with the ECB’s strategy to guide inflation toward its 2% target against a backdrop of weaker economic growth in the Eurozone.

Nonetheless, the dovish remarks from the Japanese authorities might undermine the JPY and cap the downside for the cross. BoJ’s board member Toyoaki Nakamura said last week that the central bank must move cautiously in raising rates, fueling uncertainty about the BoJ’s December policy decision.