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USD/JPY: Japan Posts Worst Single-Month Trade Deficit, FX Intervention Issues

USD/JPY: Japan Posts Worst Single-Month Trade Deficit, FX Intervention Issues

Richard Snow, Analyst

Japanese Yen, USD/JPY News and Analysis

  • FX intervention or continued ‘jawboning’ from Japan officials?
  • Japan posts record trade deficit – soaring energy costs coupled with weaker yen
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FX Intervention or Continued ‘Jawboning’ from Japan Officials?

In yesterday’s Japanese Yen report, strategist Nick Cawley highlighted an increased sense of urgency from Tokyo concerning undesirable volatility in the FX markets. In addition, according to a market source, Reuters reported that Bank of Japan conducted “checks” in the currency market – suggesting that FX intervention may be on the cards. Further speculation ensued after the Chief Cabinet Secretary Matsuno declined to comment when asked about the check.

Something to remember is that Japan requires approval for the G7 nations before it can directly intervene in the FX market and more importantly, would need the blessing of the United States. The U.S. has enjoyed the benefit of a stronger dollar via increasing purchasing power and may not be ready to lower its value just yet. The Fed’s relentlessness in hiking rates aggressively also adds to a stronger dollar as bond yields continue to rise, meaning intervention becomes less effective.

Japan Registers Largest Single-Month Trade Deficit

In August, Japan’s imports outstripped exports by the largest margin on record. Exports rose 49.9% in the year to August as a result of increased oil, coal and liquified gas (LNG) prices, pushing Japan’s accumulated trade deficit to its lowest on record.

Japan Trade Deficit (total)

Source: Refinitiv, Japan Ministry of Finance

Perhaps, in acknowledgement of the dire situation, Japan is expected to waive visa requirements for short-term travelers in an attempt to revive the tourism sector and scrap the daily entry cap of 50,000 people. This offers an opportunity for travelers of the selected countries, such as the U.S., to capitalize on their increased buying power by visiting Japan.

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USD/JPY Technicals

The USD/JPY pair has moved lower after printing what appears like a potential double top just below the psychological 145 level. However, a return to 145 is on the cards if markets call the BoJ’s bluff ahead of next weeks Fed meeting where the rate setting committee is expected to hike by a minimum of 75 basis points according to current rate hike probabilities implied from money markets.

That being said, the RSI is showing a return from overbought conditions which indicates that the pair may be due a pullback, towards 141.50 – a level that halted prior retracements.

USD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

The 2-hour chart helps analyze recent and current price action on a more granular level. Price now sits in the middle of the recent range where a bounce off the 143.40 level may suggest a retest of 145. The emergence of higher lows helps add to the bullish narrative over the short-term.

USD/JPY 2-Hour Chart

Source: TradingView, prepared by Richard Snow

Major Risk Events

Retail sales data for August is anticipated to yield very little with a forecast figure of a 0% increase month on month. Michigan Consumer sentiment continues the ‘consumer’ theme where conditions are expected to have improved despite the recent rise in CPI.

Customize and filter live economic data via our DaliyFX economic calendar

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--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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