Yen Rallies Marginally as Japan’s Merchandise Trade Balance Down Sharply

THE TAKEAWAY: Japan merchandise trade balance negative ¥907.3 Billion > Yen slightly strengthened > Markets wait for FOMC rate decision.

Merchandise Trade balance for Japanese goods fell short of expectations by roughly ¥363 billion with imports exceeding exports by ¥907.3 billion. The economy has been steadily oscillating towards trade deficits since December 2010. A negative balance may lead to future currency depreciation as the net flow of goods entering the economy requires that Yen is sold and converted to purchase goods.

The Yen moved higher despite the possibility that policy makers may be encouraged to intervene and weaken the currency which could help ease the pressure on weak exports. However, a likely catalyst underscoring the move higher is that participants may be looking ahead to the FOMC rate decision later today at 16:30 GMT along with the prospect of further quantitative easing. If additional stimulus measures are taken, then it’s possible that demand for US treasuries could increase potentially causing downward pressure on US yields. The subsequent result may lead to a less attractive dollar versus the Yen.