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USD/JPY rises as Japan trade deficit widens and imports jump

Japan’s July merchandise trade deficit widened to JPY 634.5 billion, while imports grew faster than exports, keeping Yen pressure elevated.

Reported · Written up by our desk · Major Pairs

USD/JPY moved higher in Asian trading, trading around 158.50 after modest losses the prior day, as the Japanese yen struggled amid wide interest rate differentials and concerns tied to fiscal and higher import costs for energy and other goods, according to FXStreet.

Japan’s merchandise trade deficit widened sharply to JPY 634.5 billion in July from JPY 409.9 billion in the prior month, marking the third straight month in the red and the largest deficit since January. Exports rose 23.2% year-on-year to JPY 11,511.8 billion, but imports increased even faster, up 27.8% year-on-year to JPY 12,146.3 billion, with both trade flows reaching record highs.

Strategists at Societe Generale said a medium-term yen recovery could be possible but likely depends on official FX intervention, or a significant fall in oil prices that would ease a headwind to Japan’s growth outlook.

On the US side, FXStreet noted that expectations around the Federal Reserve were a factor for the dollar, citing July meeting minutes that showed officials favored raising rates soon if inflation did not cool. CME FedWatch data referenced by FXStreet put the probability of a Fed rate hike at 32.7% for the next meeting, down from 47% a month earlier.

Latest closeUSD/JPY 159.31 ▼0.1%

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