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Japanese Yen Affected by Balance of Payments, Looks Ahead to GDP Data

August 8, 2018 at 17:09 by Andrew Moran

Japanese currency and coinsThe Japanese yen tumbled midweek after the country’s balance of payments for June missed market forecasts. Investors will now look ahead to Japan’s second quarter gross domestic product (GDP) numbers to find direction in the currency.

According to the US Department of Commerce, the US goods trade deficit with Japan declined 3.4% in June to $5.31 billion, but there has been a year-over-year jump of 1.9% to $34.6 billion in the first half of 2018. The world’s third-largest economy’s balance of payments on current accounts totaled $10.56 billion in June, which is lower than the initial projections of just under $10 billion. The data also found that the trade balance rose to $7.45 billion, rising from a $2.75 billion shortfall.

Japanese markets will now look ahead to official second quarter GDP data that will be published on Thursday. Analysts are expecting a strong rebound from the first quarter’s surprise contraction.

The yen may have a short-term hurdle to climb on a strengthening US dollar. The greenback has been rising against a basket of currencies and the US Dollar Index has held steady at the crucial 95.0 threshold, rallying more than 3% year-to-date. Financial experts believe the buck’s fundamentals are sound, which may lead to a technical pullback in the yen.

Another difficulty for Japan and the currency will be a trade war between the world’s two largest economies. There are concerns that Tokyo will be dragged into the US-China trade spats because it maintains consistent trade surpluses, thanks to its flagship auto industry. The Japanese government has already taken action, complaining to the World Trade Organization (WTO) about US tariffs on aluminum and steel that’s affect car manufacturing.

Overall, the national economy might be healthy, but it continues to receive support from the Bank of Japan (BOJ). Last month, the central bank announced that it was maintaining its ultraloose monetary policy, leaving interest rates unchanged at -0.1% and pushing ahead with easing until inflation targets top 2%.

In other words, the Japanese economy may be getting by with training wheels.

On Wednesday, the BOJ published its “summary of opinions” from its latest monetary policy meeting. Though there was some dissent, the official comments showed that policymakers agreed to allow its yield target for ten-year government bond yields to fluctuate at greater disparities.

The USD/JPY currency pair tumbled 0.35% to 110.99, from an opening of 111.38, at 16:47 GMT on Wednesday. The EUR/JPY fell 0.42% to 128.66, from an opening of 129.17.

If you have any questions, comments or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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