Japanese trade data for the month of January are scheduled for release on Sunday at 2350 GMT. Exports are projected to grow for the 14th consecutive month on a yearly basis and imports for the 13th. Yen pairs will be gathering attention as the data go public, though – especially as of late – those have been sensitive to other factors which are at play at the moment, rather than to economic releases out of Japan.
Exports are forecast to expand by 10.3% y/y in January and imports by 8.3%. These compare to December’s figures of 9.3% for exports and 14.9% for imports. The world’s third largest economy is anticipated to report a trade deficit of one trillion yen (around $9.42 billion) in January, after December’s surplus of 358.7bn yen (around $3.38bn).
The rise in exports is expected to in large part be attributed to robust vehicle and semiconductor equipment shipments, with the global economic recovery that seems to be picking up steam setting a positive backdrop for Japanese exports moving forward. A risk though – potentially to a larger extent for auto exports – is the implementation of trade protectionist measures by the US as the country is getting closer to November’s mid-term elections and rhetoric might heat up; the House of Representatives and 33 of 100 Senate seats will be contested in those elections.
Higher costs from new-model smartphones and elevated oil prices are contributing to the growth in imports, with stronger domestic demand on the back of a recovering economy also playing its role. Q4 2017 GDP figures earlier in the week showed the economy expanding at a weaker pace than anticipated, though still one cannot discount the fact that the economy posted its eighth straight quarter of positive growth, the longest such stretch since a period back in the 1980s. Also, it is the view of analysts that the slowdown during the last quarter of last year will turn out to be of temporary nature.
Sunday’s release could spur some movement in the dollar/yen pair, which on Friday hit a fresh 15-month low of 105.52 after declining considerably in previous days amid broad dollar weakness. Upbeat readings could lead to further declines, with the area around the 105 handle coming into view as potential support; 105 may hold psychological significance. On the upside and in case of disappointing trade figures, the pair could find resistance around the 107 handle that may also be of psychological importance – the area around this level also encapsulates a low from early September (107.31).
Despite trade figures having the capacity to lead to positioning in dollar/yen, it has been undoubtedly the case that other factors have been dominating attention recently, leading to yen strength versus the US currency. An ever-expanding US budget deficit potentially leading to unsustainable debt levels is one of those factors weighing on the greenback. Mounting debt concerns could see dollar/yen extent declines beyond the aforementioned 105 level, with the area between 100-103 which was congested in mid-2016 increasingly coming into view. A caveat that could halt declines in the pair is Japan’s unease with a strengthening currency, as it can hurt exports and hamper inflationary pressures. Earlier on Friday, the nation’s top government spokesman expressed discontent over the recent moves, adding that the government would take appropriate measures if required.
Other notable releases out of Japan next week are the flash Nikkei manufacturing PMI reading for the month of February due on Wednesday at 0030 GMT and, more importantly, January’s inflation figures scheduled for release on Thursday at 2330 GMT. Core CPI, which excludes volatile fresh food prices but includes oil products and is utilized by the Bank of Japan in its policy-making, is expected to rise by 0.8% y/y versus 0.9% in December; the Japanese central bank’s target for inflation is 2% annually.
Finally, it deserves mention that earlier on Friday, Haruhiko Kuroda was reappointed as BoJ Governor. His reappointment is seen as supporting the case for ultra-loose monetary policies remaining in place, at least for the time being.