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Japanese Yen Shrugs off Largest Trade Deficit in 2 Years

Japanese Yen Shrugs off Largest Trade Deficit in 2 Years

Daniel Dubrovsky, Contributing Senior Strategist


Talking Points:

  • Japanese Yen quiet even though trade deficit blew beyond expectations, climbing to 2-year high
  • This was also the first trade balance deficit in one year, current account however was positive
  • Next week might offer more volatility for the JPY as the BoJ rate decision is due to cross the wires

See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.

The Japanese Yen offered a tame response against its major counterparts Wednesday morning despite news of the largest trade deficit since January 2015 - a two-year high. In the opening month of 2017, a trade surplus ¥806.8b swung sharply to deficit in December to the tune of -¥853.4b, larger than the -¥800.2b shortfall expected. This was also the first negative recording since January 2016.

Looking at broader trade measure, the current account balance crossed the wires with a ¥65.5b positive reading versus ¥270.0b expected and ¥1112.2b prior. The adjusted current account surplus was ¥1259.8b against ¥1464.1b estimates and ¥1659.4b in the last month.

The trade balance figure measures the difference between a nation’s exports and imports of goods and services. Since the reading was negative, it means that Japan bought more from other nation’s than it did sell to them – leading to a practical capital outflow. This may also contribute negatively to the country’s overall gross domestic product figures. However, the current account balance was positive. This measurement includes the trade balance and adds on top of that net income from abroad and net current transfers.

Perhaps the Yen’s muted response to the data could be explained by its minimal impact to Bank of Japan policy adjustment expectations. In January, the central bank left its policy setting alone as widely expected. The next BoJ interest rate decision is due on March 16th.

Chart compiled in Tradingview

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.