USDJPY Price Forecast: Yen Falls As Japan’s Trade Deficit Widens

The USDJPY edged higher today after Japan reported its widest monthly trade deficit in history as import prices soared by 49.9% resulting in an accumulated trade deficit of ¥2.817 trillion compared to analysts’ expectations of ¥2.398 trillion.

The Bank of Japan said that it had been conducting checks in the currency markets as the yen becomes increasingly volatile, making many investors predict that the BoJ may be considering some FX interventions to stabilise the yen.

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However, such a move would be pretty complex since Japan would have to inform the G7 countries of which it is a member of the exact steps it intends to take to boost its domestic currency. The country would also have to gain the approval of the US Federal Reserve.

Regardless, Japan’s current predicament is of its own making. It refused to hike interest rates as other leading central banks, such as the Fed, the Bank of England, and the Bank of Canada, started hiking interest rates to combat rising inflation.

The country has maintained its easy money policies for years, despite its economy not responding as well as expected, given that its Nikkei index is still trading below its 1989 peak.

While Japan’s demographics differ from those of other countries, many have cast doubt on using quantitative easing to stimulate economic growth. Still, we must consider that Japan has been dealing with a declining population for many years.

However, there is hope for the Japanese yen since many analysts are predicting that the US dollar has peaked as the Fed nears the end of its rate hiking cycle. While the Fed is expected to hike rates next week, investors expect the Fed to stop hiking rates in the coming months and start reversing its hawkish policies by the end of 2023.

Meanwhile, investors eagerly await the Fed’s rate hike next week and confirmation of FX interventions from the Japanese government.

*This is not investment advice.

USDJPY price chart.

The USDJPY currency pair was trading up 23.2 pips (0.16%) as Japan’s trade deficit widened.