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USD/JPY: Trade Balance Spells Trouble For Yen

USD/JPY: Trade Balance Spells Trouble For Yen

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So far, USD/JPY is yet to react to the worse-than-expected trade balance data from Japan, which showed a wider deficit than forecast.

Japan’s trade balance data for July showed a deficit for the twelfth consecutive month, coming in at -$1.4368 billion. The print was below the forecast of -$1.405 b, and wider than the -$1.398 recorded in June.

The Trade Balance measures the difference in value between imported and exported goods and services during the reporting period. The negative figure shows that less products and services were exported than imported.

Despite the weaker yen encouraging individuals an institutions to send money to Japan for it’s goods, we have to go back to July 2021 for the last time the trade balance was positive.

The trade imbalance suggests that Japan’s economy will continue to struggle. The nation relies on imports to fill its energy and food needs. Both of which remain stubbornly high in price due to the ongoing Russia/Ukraine conflict. With this in mind, the Bank of Japan faces increasing calls to raise rate to strengthen the currency. Which it has so far failed to do.

US Dollar to Japanese Yen Outlook

USD/JPY continues to trade with a sideways bias between two key indicators. Below the market, the 100-Day Moving Average (DMA) at 131.65 (blue line) provides significant price support. Notably, the price has turned higher from the indicator twice this month.

Countering the 100-DMA, the 50-DMA at 135.35 (green line) offers resistance above the market. Attempts to punch above the 50-DMA were repelled last week, confirming it’s importance.

The Relative Strength Index (RSI) of 48.09 gives no clues as to which of the Moving Averages will be first to fall. With this in mind, the immediate outlook is neutral.

However, considering the poor trade data, a test of the 50-DMA looks more likely. Successful clearance of 135.35 opens the door for push towards the two-decade high of 139.38 recorded in July.

On the other hand, a slide below the 100-DMA brings the 128.00 – 130.00 range into focus.

USD/JPY Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.