November 24, 2022
  • November 24, 2022

Japan posts worst trade deficit in a month, FX intervention issues

By on September 15, 2022 0

Japanese Yen, USD/JPY News and Analysis

  • Intervention on the foreign exchange market or continued “jawboning” by Japanese officials?
  • Japan posts record trade deficit – soaring energy costs coupled with weaker yen

FX Intervention or Continued “Jawboning” by Japanese Officials?

In yesterday’s Japanese yen report, strategist Nick Cawley pointed to a heightened sense of urgency from Tokyo regarding unwanted volatility in the currency markets. In addition, according to a market source, Reuters reported that the Bank of Japan had carried out “checks” on the currency market – suggesting that intervention in the foreign exchange market could be considered. Further speculation followed after Chief Cabinet Secretary Matsuno declined to comment when asked about the cheque.

It should not be forgotten that Japan needs the approval of the G7 countries before it can intervene directly in the foreign exchange market and, more importantly, would need the blessing of the United States. The United States has benefited from a stronger dollar thanks to increased purchasing power and may not yet be ready to lower its value. The Fed’s insistence on aggressively raising rates is also contributing to a stronger dollar as bond yields continue to rise, meaning intervention is becoming less effective.

Japan posts biggest trade deficit in a month

In August, Japan’s imports exceeded exports by the largest margin on record. Exports rose 49.9% year to August on higher oil, coal and liquefied gas (LNG) prices, pushing Japan’s accumulated trade deficit to its lowest level ever checked in.

Japan’s trade deficit (total)

Source: Refinitiv, Japanese Ministry of Finance

Perhaps, in recognition of the dire situation, Japan should waive visa requirements for short-term travelers in a bid to revive the tourism sector and scrap the daily entry cap of 50,000 people. This provides an opportunity for travelers from selected countries, such as the United States, to capitalize on their increased purchasing power by visiting Japan.

Recommended by Richard Snow

How to trade USD/JPY

USD/JPY Technical

USD/JPY declined after printing what appears to be a potential double top just below the psychological level of 145. However, a return to 145 is expected if markets call the BoJ bluff ahead of the Fed meeting next week where the rate setting committee is expected to rise by at least 75 basis points based on the current odds of higher rates implied in the money markets.

That being said, the RSI is showing a return of overbought conditions, indicating that the pair may be due for a pullback, towards 141.50 – a level that halted earlier retracements.

USD/JPY daily chart

Source: Trading View, prepared by Richard Snow

The 2-hour chart helps analyze recent and current price action on a more granular level. Price is now 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 reinforce the short-term bullish narrative.

USD/JPY 2 hour chart

Source: Trading View, prepared by Richard Snow

Major risk events

Retail sales data for August is expected to yield very little with the forecast figure of a 0% increase month-over-month. Michigan Consumer sentiment continues the “consumer” theme where conditions should have improved despite the recent CPI hike.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnotowFX

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