USD/JPY sits at a key support as Japan’s trade deficit soars

The Japanese yen moved sideways after the country’s statistics agency published mixed economic data. The USD/JPY pair is trading at 115.50, where it has been in the past few days.

Japan exports and industrial production

Japan’s exports declined from 17.5% in December to 9.6% in January. That increase was lower than the median estimate of 16.5%. In the same period, imports rose by 39.6% after rising by 41.1% in the previous month. 

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As a result, the trade surplus jumped to a ten-year high of over 2 trillion yen. Analysts were expecting the deficit to come in at about 1.6 trillion yen. The ministry of commerce attributed the trade imbalance to higher energy costs considering that oil and gas prices have soared to a multi-year high.

Additional data showed that Japan’s core machinery orders rose from 3.4% in November to 3.6% in December. This increase translated to a year-over-year increase of 5.1%. Analysts were expecting the orders number to drop by 1.8% on a MoM basis.

Meanwhile, foreign investors sold fewer Japanese stocks in January than in December. Precisely, they sold shares worth 29.7 billion yen after selling 232 billion yen in the previous year.

These numbers came two days after the country published strong GDP numbers. The data revealed that the economy rose by 5.4% in Q4 even as the Omicron variant spread. Therefore, for 2021, the economy rose by 1.7%, marking the first expansion in three years.

Therefore, with the economy expected to do better this year, analysts are pricing in a situation where the BOJ embraces a more hawkish tone this year. The bank has been one of the most dovish in the developed world.

USD/JPY forecast

The four-hour chart shows that the USD/JPY pair has been in a bullish trend in the past few days. Along the way, the pair has formed an ascending channel that is shown in blue. A closer look reveals that it is forming a head and shoulders pattern. It is also along the 25-day moving average while the MACD and the Money Flow Index (MFI) have turned around. 

Therefore, there is a likelihood that the pair will continue retreating in the coming days. If this happens, the next key level to watch will be at115.0.