USD/JPY spikes as Japan exports tumble for 19th straight month

The USD/JPY pair rose slightly during the Asian session as traders reacted to the disappointing trade numbers from Japan. The pair is trading at 107.33, which is higher than Friday’s close of 107.08.

Japan exports declined in June

Japan, the third-largest economy in the world, is going through its worst economic situation in decades. The economy contracted by 2.2% in the first quarter after dropping by more than 7% in the fourth quarter of 2019. That is evidence that the economy was suffering even before the coronavirus pandemic. And analysts at UOB expect the economy dropped by 5% in the second quarter and by 18.6% year on year.

Trade numbers released by the Ministry of Finance show that the situation could be worse than what analysts are expecting. Exports, which are the core of the Japanese economy, declined by 26.2% to ¥4.86 trillion. In June 2019, the country exported goods worth more than ¥6.5 trillion. This number was worse than the 24.9% decline that analysts were expecting. It was also the 19th straight month that the exports have fallen.

The country’s imports also declined by 14.4% to ¥5.13 trillion in June. In June last year, the country imported goods worth more than ¥5.9 trillion. As a result, the trade deficit rose to ¥268 billion.

According to the Ministry of Finance, the biggest contributors to exports decline was North America, where they declined by 47.1%. Exports to the United States and Canada fell by 46.6% and 54.8% respectively.

Similarly, exports to the UK, Germany, and Netherlands declined by 51%, 30%, and 34% respectively. Exports to China, Japan’s biggest trading partner, declined by just 0.2% in June. Motor vehicle exports declined by 46% while ships fell by 96%.

The data came at a time when Japan is going through tensions with China and South Korea. Over the weekend, it was reported that the country was considering paying Japanese firms in China to move back to the country. The Shinzo Abe’s government is planning to spend at least $536 million on this program.

The trade numbers came a week after the Bank of Japan left interest rates unchanged. It also came a few weeks after data showed that the manufacturing sector in the country made a modest recovery. Also, according to Hurohiko Kuroda, the country’s economy is past the worst.

USD/JPY technical forecast

The USD/JPY pair has been moving sideways in the past few weeks, as evidenced by the four-hour chart below. The pair is slightly above the 50-day and 100-day hull moving averages. The price has also moved slightly below the 38.2% Fibonacci retracement level. Therefore, I expect the pair to continue rising as bulls target the next resistance level at 108.