USDJPY declines as Japan’s trade deficit grows and mixed U.S. economic signals continue

USDJPY Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	-1.01%	-145.2 Pips
Week to-date	-1.14%	-163.1 Pips
April	-5.38%	-806 Pips

Upcoming key events (London Time)

No major events for the day.

What happened lately

In Japan, there has been a negative shift in their trade balance as the Adjusted Merchandise Trade Balance significantly decreased to -233.6 billion yen in March from 182.3 billion yen in February. This has been compounded by the reduced growth in exports, which fell to 3.9% in March, compared to 11.4% in February. Meanwhile, imports saw a turn-around, increasing to 2% from a previous negative growth rate of -0.7%. These developments indicate a deteriorating trade environment, with increased imports contributing to a larger trade deficit, while export growth momentum has slowed. Such trends highlight potential economic vulnerabilities related to international trade.

In the United States, economic indicators present a mixed picture. U.S. Monthly Retail Trade rose to 1.4% in March from 0.2% in February, suggesting an increase in consumer spending, which is a positive sign for the economy. However, when automobiles are excluded, the growth decreased to 0.5% from 0.7%. Furthermore, the Retail Trade Control Group showed a significant drop to 0.4% from 1.3% previously, indicating some underlying weaknesses in retail sectors. On a more positive note, the New York Empire State Manufacturing Index improved significantly in April, moving to -8.1 points from -20 points, signaling an improving manufacturing outlook.

The recent economic data from both Japan and the U.S. impacts the USDJPY exchange rate. Japan’s negative trade balance and reduced export growth typically exert downward pressure on the yen due to potential weakening of the economic outlook. On the other hand, the mixed signals from the U.S., with retail trade showing both strengths and weaknesses, make the outlook for the dollar less clear-cut. However, the improvement in the manufacturing index provides some support for the dollar. The net effect on the USDJPY is that the yen might weaken due to Japan’s trade data, but the mixed U.S. data introduces some volatility. Nonetheless, as seen recently, USDJPY dropped by 1.01% to 141.72, reflecting these complex economic influences as market participants react to changing expectations. Without major upcoming events, the current trends in economic data will likely continue to influence USDJPY movements.

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What can we expect from USDJPY today?

USDJPY on Wednesday dropped -1.01% to 141.72. Price is below 9-Day EMA while Stochastic is falling in oversold zone.

Updated daily direction for USDJPY looks bearish as the pair posted lower in Wednesday trading session.

Looking ahead for the day, immediate support level is at 141.14 (S1) with break below could see further selling pressure towards 140.57 (S2). To the upside, with the current momentum bearish, we prefer to look at breakout of the recent daily high of 143.28 as a potential indicator of buying interest. Failure to break the resistance level would continue to echo bearish sentiment. A close below 141.64 would indicate selling pressure.

For the week to-date, take note that USDJPY is bearish as the pair posted lower by -1.14%.

Key levels to watch out: