USD/JPY Forecast: Falling Imports Deliver a Trade Surplus of ¥366.5 billion

Imports Decline, Delivering a Trade Surplus

On Wednesday, trade data from Japan put the USD/JPY in focus.

The trade balance shifted from a ¥377.8 billion deficit to a ¥366.5 billion surplus in March.

According to the Ministry of Finance,

• Exports increased by 7.3% year-on-year (Feb: +7.8%), while imports declined by 4.9% (Feb: +0.5%).
• Japanese exports to China were up 12.6% year-on-year (Feb: +2.5%).
• Exports to the US increased 8.5% year-on-year (Feb: +18.4%).
• Imports from China decreased by 86.5% year-on-year compared to a decline of 107.0% in February.
• From the US, imports increased by 16.3% year-on-year (Feb: +34.1%).

The year-on-year decline in imports could signal a weakening demand environment that could impact exports for April.

US Economic Calendar: Fed Speakers in the Spotlight

On Wednesday, investors should monitor FOMC member speakers. Investors responded to US retail sales figures and Fed Chair Powell, cutting bets on a Fed rate cut until September.

Hawkish chatter would align with market sentiment and further influence the Fed rate path.

FOMC members Michelle Bowman and Loretta Mester are on the calendar to speak on Wednesday.

Loretta Mester previously said data may support a June Fed rate cut. However, inflation and retail sales reports could change the narrative. Last week, Michelle Bowman warned the Fed could raise interest rates if inflation remained elevated. Further calls for a Fed rate hike would drive buyer demand for the USD/JPY pairing.

According to the CME FedWatch Tool, the probability of a June Fed rate cut fell from 20.7% to 18.8% on Tuesday, April 16. On Tuesday, April 9, there was a 56.1% chance of a June Fed rate cut.

Bets on a September also turned less dovish The probability of the Fed leaving interest rates at 5.50% increased from 28.6% to 31.5% on Tuesday, April 16. On April 9, the chances of the Fed leaving interest rates unchanged stood at 8.5%.

While Fed speakers will draw investor attention, news updates from the Middle East also need consideration.

Short-term Forecast

Near-term trends for the USD/JPY hinge on central bank chatter amid falling bets on a 2024 Fed rate cut. However, news updates from the Middle East also warrant investor attention amid threats of retaliation against the Saturday attack.

USD/JPY Price Action

Daily Chart

The USD/JPY sat well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY break above the April 17 high of 154.722 could support a move to the 155 handle.

Trade data from Japan, the Japanese government chatter, Middle East-related news, and central bank commentary need investor consideration.

Conversely, a USD/JPY drop below the 153.5 handle could give the bears a run at the 151.685 support level.

The 14-day RSI at 79.40 shows the USD/JPY in overbought territory. Selling pressure could intensify at the April 17 high of 154.722.