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USD/JPY: Japan’s Worst Monthly Trade Deficit, FX Intervention

FX INTERVENTION OR PERSONNEL FROM JAPAN CONTINUED TO “JAWBON”?

Strategist Nick Cawley emphasized an increased sense of urgency from Tokyo regarding unwelcome volatility in the foreign exchange markets in yesterday’s Japanese Yen report. Additionally, Reuters claimed that the Bank of Japan conducted “checks” in the currency market, citing a market source, suggesting that FX intervention may be in the works. After Chief Cabinet Secretary Matsuno declined to comment when questioned about the check, more rumour started to circulate.

Keep in mind that before Japan can directly intervene in the FX market, it needs the G7 nations’ approval and, more importantly, the United States’ consent. The U.S. has benefited from a stronger dollar by having more purchasing power, so it might not be ready to see its value fall just yet. The Fed’s persistence in escalating rate hikes also contributes to a stronger dollar as bond yields rise, making intervention less effective.

JAPAN RECORDS BIGGEST MONTHLY TRADE DEFICIT

The largest margin ever between imports and exports in Japan occurred in August. Due to higher prices for oil, coal, and liquefied gas (LNG), exports increased 49.9% in the year to August, resulting in Japan’s cumulative trade deficit reaching a record-low level.

Trade Deficit in Japan (total)
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Source: Refinitiv, Japan Ministry of Finance

Japan is anticipated to waive visa requirements for short-term visitors in an effort to revive the tourism industry and eliminate the daily entry cap of 50,000 people in recognition of the dire situation. This gives visitors from the chosen nations, like Americans, the chance to visit Japan and take advantage of their higher purchasing power.

JPY/USD TECHNICALS

After printing what seems to be a possible double top just below the critical 145 level, the USD/JPY pair has now drifted lower. But if markets call the BoJ’s bluff ahead of next week’s Fed meeting, when the rate-setting committee is anticipated to raise rates by at least 75 basis points based on current rate rise probability suggested by money markets, a return to 145 is possible.

However, the RSI is indicating that overbought circumstances have passed, suggesting that the pair may be set for a fall around 141.50, a level that previously stopped retracements.

Daily USD/JPY Chart
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Source: TradingView

A more detailed analysis of previous and present price activity may be done using the 2-hour chart. Price is now in the centre of the most recent range, and a rebound off the level of 143.40 may signal a potential retest of 145. The formation of higher lows supports the short-term bullish thesis.

2-Hour USD/JPY Chart
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Source: TradingView

BIG RISK EVENINGS

Retail sales figures for August are expected to show virtually little growth month over month, according to the prediction. Keeping with the “consumer” theme, circumstances are anticipated to have improved in Michigan despite the recent increase in the CPI.

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