USD/JPY still in lockdown as Japan trade numbers hit record lows

The USD/JPY was unchanged today even after the Ministry of Finance released disappointing trade numbers. The pair is trading at 107.25, down from this month’s high of 109.82.

Japan exports slide

Japan is going through its worst financial crisis in modern times. The crisis has been worsened by the fact that the country was going through a recession before the coronavirus pandemic.

The latest trade numbers provide evidence of how hard the economy has been hit. According to the Ministry of Finance, Japan’s exports declined by 28.3% in May. They totalled more than ¥4 trillion, down from ¥5.3 trillion in the previous month. This was the worst year-on-year decline on record.

Worse, the exports have been on a downward trend for months. The last month that the exports grew was in October 2018, when they rose by 8.2%. In the past three months, the growth has been on a downward trend. The exports fell by 11.7% in March followed by another 21% decline in April.

Imports also disappointed. The volume of imports declined by a record 26.2% in May. The imports fell from ¥6.8 trillion to ¥5.01 trillion. As with the exports, imports have been shrinking for the past 13 months. Also, last month’s decline was the worst since July 2018. As a result of all these, the country’s trade surplus declined by 13.7% to ¥833 billion.

According to the ministry, exports to China declined by 2% while those to South Korea fell by 27.1%. Exports to the US fell by 27% while those to Western Europe fell by 30.9%. Foodstuff exports declined by 28.3% while manufactured goods and machinery declined by 23.8% and 20.9% respectively. Motor vehicles exports declined by 64.1%.

Many companies in Japan like Toyota, Honda, Nissan, and Mitsubishi have recently announced a sharp reduction in output and investments.

Bank of Japan (BOJ) decision

The USD/JPY pair was also unchanged in reaction to the BOJ interest rate decision. In its statement yesterday, the bank left interest rate unchanged at -0.10% and maintained its open-ended quantitative easing program. Also, the bank retained its yield curve control policy, in which it ensures that the yield of the 10-year Japanese bonds at zero.

Most importantly, the bank announced that it would accelerate its funding for businesses. In this, the bank increased the funding to banks from the previous ¥75 trillion to ¥110 trillion ($1.02 trillion). The banks will be given these funds to help them lend to small and medium-sized enterprises. In addition, it said that it would continue buying exchange traded equity funds at an annual pace of ¥12 trillion. In a statement, an analyst at Barclays said:

“With fiscal expenditure under the government’s emergency economic measures set to kick into gear and financial conditions remaining accommodative, the BoJ appears to have put further action on hold to monitor the effects of the various monetary easing measures it has taken to date.”

USD/JPY technical analysis

The USD/JPY is unchanged above the important psychological level of 107.00. On the daily chart, the price is slightly above the 100-day and 50-day exponential moving averages. It is also between the 61.8% and 50% Fibonacci retracement level. Most importantly, as with the USD/SGDpair, it has formed a bearish pennant pattern. This means that bears will attempt to move below the important support of 107.00 and possibly test the support at 106.62.