Japanese Yen depreciates due to increased trade deficit, steady US Dollar

■ Thebnb price in inr Japanese Yen lost ground after the release of Japan’s Trade Balance on Wednesday.

■ Japan’s trade deficit increased to JPY 462.5 billion in April, a significant shift from the previous month's surplus.

■ Traders await FOMC Minutes to seek further clues about the Fed policy stance.

The Japanese Yen (JPY) weakened following the release of Japan's Merchandise Trade Balance data on Wednesday. The report showed that the trade deficit increased to JPY 462.5 billion month-over-month in April, swinging from the previous surplus of JPY 387.0 billion. This outcome exceeded market expectations of a deficit of JPY 339.5 billion. The depreciation of the JPY led to an increase in the value of imports, outweighing gains from a rise in exports.

Japan’s Exports (YoY) grew by 8.3% to JPY 8,980.75 billion, marking the fifth consecutive month of growth but falling short of forecasts for an 11.1% increase. Imports also expanded by 8.3%, representing the strongest growth in 14 months, reaching a four-month peak of JPY 9,443.26 billion. This growth reversed the trend from a revised 5.1% drop in March.

The US Dollar (USD) advanced ahead of the release of the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, scheduled for Wednesday. The appreciation in US Treasury yields provided support for the Greenback.

Daily Digest Market Movers: Japanese Yen depreciates amid hawkish Fed

According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight uptick to 50.3%, compared to 49.6% a day ago.

Federal Reserve Bank of Boston President Susan Collins highlighted on Tuesday that progress toward interest rate adjustment will require more time, emphasizing patience as the appropriate policy for the Fed. Additionally, Federal Reserve Governor Christopher Waller mentioned that he would need to observe several more months of positive inflation data before feeling comfortable supporting a policy easing, per Reuters.

On Tuesday, Japanese Finance Minister Shunichi Suzuki expressed concerns about the negative implications of the weak JPY. Suzuki also said that market discussions are centered on long-term rates as they increase, focusing on appropriate national debt policies in Japan. There are hopes for wage hikes to surpass the inflation pace. He stated that he is closely monitoring FX movements.

A BoJ survey showed on Monday that approximately 70% of firms reported experiencing drawbacks from the BoJ's 25-year-long monetary easing measures, notably citing a weak JPY that increased import costs. However, around 90% of the firms also acknowledged benefits stemming from the BoJ's prolonged easing, including low borrowing costs. Among Japan's large manufacturers, exchange rate stability emerged as the primary factor they desired from the central bank's monetary policy.

Market sentiment emerges that the BoJ might reduce bond purchases at the June policy meeting. BOJ Governor Kazuo Ueda also indicated that there are no immediate plans to sell the central bank’s ETF holdings.

Technical Analysis: USD/JPY rises to a major level of 156.50

The USD/JPY pair trades around 156.30 on Wednesday. The daily chart for USD/JPY displayed an ascending triangle formation. Additionally, the 14-day Relative Strength Index (RSI) indicated a bullish bias, slightly above the 50 mark.

The USD/JPY pair could retest the upper boundary of the ascending triangle near the psychological barrier at 157.00. A break above this level could propel the pair toward the high of 160.32, a level not seen since April 1990.

On the downside, the lower threshold of the ascending triangle provides immediate support around the major level of 155.50, followed by the 21-day Exponential Moving Average (EMA) at 155.33. A break below this level could exert downward pressure on the USD/JPY pair, potentially moving it toward the throwback support at 153.60.