TALKING POINTS: YEN, USD/JPY, BANK OF JAPAN, CPI, TRADE WARS
- Yen cautiously lower after July’s trade balance data, follow-through lacking
- Bank of Japan unlikely to consider a near-term policy change
- USD/JPY eyes US CPI and potential US-Japan trade war next
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The Japanese Yen slightly declined against the US Dollar as a flood of local economic data crossed the wires early into Monday’s Asia Pacific trading session. July’s balance of payment basis trade balance clocked in at -¥1.0b, up from economists’ forecasts of -¥47.7b but sharply lower from June’s ¥820.5b. This descent pared gains from the Yen’s rally during the latter half of last week, responding to news that President Trump may soon target Japan in the next series of developments of US tariffs.
USD/JPY 5-Minute Chart
However, the Yen’s slight downside momentum may continue as the currency pair has remained in a downtrend channel since July 20th. USD/JPY is close to testing a March 2018 uptrend line. Traders may look for confirmation of a breakout before next moves.
USD/JPY Daily Chart
Regardless, the weakening in economic activity is unlikely to significantly affect the Bank of Japan’s monetary policy, as local inflation has consistently come in under the “sustainable two-percent” target set by the central bank. Furthermore, the monetary policy is currently pursuing in a large-scale quantitative and qualitative easing program with added yield curve control, which has done little to help the island nation’s slow growth.
Looking ahead, economic data and market risk trends will continue to indicate next moves for the currency pair. USD/JPY may be impacted by the release of July’s Japanese machine tool orders and August’s US CPI figures. Furthermore, heightened risk aversion could cause the anti-risk Japanese Yen to rise as traders await potential confirmation of a US-Japan trade war as the world’s third-largest economy continues to run trade surpluses with the United States.
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--- Written by Megha Torpunuri, DailyFX Research Team
