• Eurozone’s HICP rose 2.2% YoY in August, aligning with expectations but capping the Euro's recovery.
• ECB official Francois Villeroy signals potential rate cuts, while Bundesbank’s Joachim Nael warns inflation isn’t yet at target levels.
• BoJ’s policy decision looms, with concerns about Yen strength potentially reducing chances for further rate hikes.

The Euro edged lower against the Japanese Yen in early trading during the North American session, down by 0.29%, after the Eurozone’s (EU) inflation approaches the European Central Bank’s (ECB) 2% goal. The EUR/JPY trades at 157.74 after hitting a high of 158.25.

EUR/JPY drops on dovish ECB comments, as traders eye BoJ’s policy decision

Eurostat revealed that the Harmonized Index of Consumer Prices (HICP) rose by 2.2% YoY in August, as estimated and aligned with the previous month's reading. The data underpinned the EUR/JPY, which was trading near daily lows of 157.04.

The Euro’s recovery was capped by ECB official Francois Villeroy's dovish comments, reaffirming that the ECB will likely continue lowering borrowing costs.

Conversely, Bundesbank President and ECB member Joachim Nael stated, “Inflation is currently not where we want it to be,” pushing back against a possible rate cut in October.

The Bank of Japan will host its monetary policy decision on Friday. Although BoJ officials leaned hawkish, some members had grown wary of the rise in the Yen, which may hinder BoJ’s chances for additional hikes, as a stronger currency would lower import costs and slow inflation.