USD/JPY price forecast as Japan trade deficit soars to record high

The USD/JPY exchange rate made a steady recovery this week after Japan unveiled the next Bank of Japan (BoJ) governor. The rebound faded slightly on Thursday after Japan published weak trade and machinery order numbers. It was trading at 133.68, a few points below this week’s high of 134.40.

Japan trade deficit soars

The biggest JPY news this week was the decision by Japan’s Prime Minister to appoint the new Bank of Japan governor. As I wrote in this article last week, he appointed Kazuo Ueda, a technocrat, to be the next head of the BoJ. 

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This appointment was important because the BoJ is the third-biggest central bank in the world after the Federal Reserve and the European Central Bank (ECB). It was also notable because of the person he is replacing – Haruhiko Kuroda.

 In the past decade, Kuroda has maintained one of the most dovish policy statements ever. He has left interest rates in the negative zone for years and added trillions of dollars to the balance sheet. As a result, the BoJ now has a balance sheet of over $7 trillion, making it bigger than the country’s GDP. 

Therefore, some investors believe that Ueda could change policy later this year by slowing ending the yield curve program and even raising interest rates from the negative level. 

The USD/JPY price also reacted to the latest economic data from Japan. The country’s trade deficit widened to a record $26 billion. Exports rose by 3.5% while imports jumped by 17.8% in January. Other numbers revealed that core machinery orders declined by 6.6% during the month. 

The other important catalyst for the USD/JPY price is the strong economic numbers from the United States. On Wednesday, data revealed that the country’s retail sales jumped sharply in January. Inflation has also held steady, meaning that the Fed will be more hawkish than expected. 

USD/JPY forecast 

My prediction of the USD/JPY forex pair last week did not work out well. At the time, I predicted that the pair would pull back after the Uoda appointment. Instead, it has jumped to the highest level since the first week of January. It has also moved slightly above the important resistance level at 132.85, the highest point in February and January 11.

The pair is being supported by the 50-period moving average. Therefore, the outlook is bullish because of the expectations that the Fed will ramp up its monetary policy in the coming months.