USD/JPY Forecast: Japan Trade Deficit Creates More BoJ Pivot Uncertainty

February 23, 2024 3:33 PM +07:00

Key Points:

  • The USD/JPY slipped by 0.07% on Tuesday, closing the session at 150.000.
  • On Wednesday, trade data from Japan drew investor interest, creating more economic uncertainty.
  • Later in the session, FOMC member speeches and the Fed Meeting Minutes will warrant investor attention.

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USD/JPY Movement on Tuesday

The USD/JPY slipped by 0.07% on Tuesday. After a 0.05% loss on Monday, the USD/JPY ended the day at 150.000. The USD/JPY rose to a high of 150.439 before falling to a Monday session low of 149.682.

Tankan Survey, Trade Data, and the Bank of Japan in Focus

On Wednesday, the Reuters Tankan Index and trade data from Japan drew investor interest. The Reuters Tankan Index unexpectedly declined from +6 points to -1 point in February. Economists forecast an increase to +7 points. However, trade data for January had more impact after the recent Q4 numbers signaled a technical recession.

The trade balance fell from a ¥62.1 billion surplus to a ¥1,758.3 billion deficit. Economists forecast a trade deficit of ¥1,925.9 billion.

According to figures released by the Ministry of Finance,

  • Exports increased by 11.9% year-over-year after rising by 9.8% in December.
    • Exports to China were up 29.2% year-on-year in January (Dec: +9.5%), with exports to the US rising by 15.6% (Dec: 20.2%).
  • Imports declined 9.6% year-over-year after falling 6.8% in December.
    • Imports from China were down 32.6% year-on-year in January (Dec: -36.1%), while imports from the US were up 48.5% (Dec: 67.7%).

The trade figures place greater emphasis on the spring wage negotiations. The decline in imports could signal a deteriorating demand environment. A weaker macroeconomic environment could impact the spring wage negotiations. Tepid wage increases may also affect the timeline for a Bank of Japan pivot from negative rates.

Beyond the trade data and the Reuters Tankan Index numbers, investors must monitor Bank of Japan commentary. Views about exiting negative rates and post-pivot interest rate trajectories need consideration.

US Economic Calendar: Fed Speakers and the FOMC Meeting Minutes in Focus

On Wednesday, the US Federal Reserve will be under the spotlight. Recent inflation reports reduced bets on the Fed cutting interest rates in March and May.

However, the markets are considering a June Fed rate cut. According to the CME Fedwatch Tool, the chances of a 25-basis point June rate cut increased from 52.1 to 54.4 since February 13. The probability of a 50-basis point rate cut rose from 20.2% to 20.8%.

FOMC members Raphael Bostic and Michelle Bowman could influence investor sentiment toward Fed rate cuts. Later in the session, the FOMC Meeting Minutes could also move the dial.

Views on the US labor market and inflation need consideration. The minutes are dated, with US inflation numbers for January out after the February FOMC Meeting. However, a hawkish tilt to the minutes and the hotter-than-expected inflation numbers could reduce bets on a June Fed rate cut.

Short-term Forecast

Near-term trends for the USD/JPY will likely hinge on the Bank of Japan and Fed. Uncertainty about the timelines for a BoJ pivot and a Fed rate cut have left the USD/JPY in sideway moves. More decisive guidance from the BoJ or the Fed could tilt the monetary policy divergence scales. Recent GDP numbers from Japan suggest a tilt toward the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, affirming bullish price signals.

A USD/JPY move through the 150.201 resistance level would bring the 151.889 resistance level into play.

Economic data from Japan, Bank of Japan commentary, intervention warnings, Fed speakers, and the FOMC Meeting Minutes need investor consideration.

However, a fall below the 149.5 handle would give the bears a run at the 148.405 support level.

The 14-day RSI at 61.59 suggests a USD/JPY return to the 151 handle before entering overbought territory.

 A Graph With Lines and Points Description Automat 5

4-Hourly Chart

The USD/JPY hovered above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the 150.201 resistance level would bring the 151.889 resistance level into play.

However, a break below the 50-day EMA would support a fall toward the 148.405 support level.

The 14-period 4-hour RSI at 47.10 suggests a USD/JPY drop below the 149 handle before entering oversold territory.

 A Graph of Stock Market Description Automatically 98

Quote source: FX Empire

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