• EUR/JPY oscillates in a narrow band above the 156.00 area.
• Markets have priced in a 25 basis point (bps) hike for the next ECB meeting,
• Japan's trade balance surprised with its first surplus since July 2021.

The EUR/JPY pair consolidates in a narrow range between 156.60 and 156.20 heading into the European session. The Bank of Japan (BoJ) has maintained its ultra-dovish policy stance, and the European Central Bank (ECB) is expected to raise interest rates by 25 basis points (bps) to 4% in the next meeting.

The final reading of the Eurozone Core Harmonized Index of Consumer Prices (HICP) rose 0.4% MoM for June versus 0.3% prior and above the market consensus. Markets have priced in a 25 basis point (bps) hike for the next ECB meeting, with the odds of a hike in September hovering around 65%. 

On the other hand, Japan's trade balance surprised with its first surplus since July 2021, easing pressure on the economy's recovery. That said, the nation’s trade surplus came to ¥43 billion. Market consensus had forecast a ¥46.7 billion deficit. The value of exports rose 1.5%, while Imports fell 12.9%.

The Bank of Japan (BOJ) Governor Kazuo Ueda stated on Tuesday that there was still some way to go before reaching the 2% inflation target, per Reuters. 

It’s worth noting that the renewed trade war tensions between the US-China might cap the upside in the Euro and support the safe-haven Japanese Yen (JPY). Market participants will keep an eye on Sino-US relations for fresh impetus.

Looking ahead, market participants will keep an eye on the Bank of Japan's (BoJ) interest rate decision scheduled for next week. BoJ Governor Kazuo Ueda is expected to maintain a dovish policy stance in order to keep inflation steady at approximately 2%. Meanwhile, the French and German Purchasing Managers' Index (PMI) and the Monetary Policy Statement will be due later next week.