USD/JPY Fundamental Daily Forecast – Positive Trade Balance: Japanese Imports Strong, but Exports were Stronger

The Dollar/Yen is trading slightly lower shortly before the release of the Federal Open Market Committee’s interest rate decision, monetary policy statement and economic projections at 1800 GMT. Fed Chair Janet Yellen is also expected to hold a press conference.

At 1749 GMT, the USD/JPY is trading 111.425, down 0.164 or -0.15%.

Fed policymakers are expected to hold the benchmark interest rate unchanged at<1.25 percent and announce their plan to begin reducing the central bank’s $4.5 billion balance sheet.

The Fed is expected to announce a lowering of monthly bond purchases, starting in October, when their two-day meeting ends on Wednesday.

The Fed is also expected to leave the door open for a rate increase at their December 12-13 meeting. At the close on Tuesday, the futures markets implied traders saw a 58.3 percent chance of a rate increase at year-end, according to the CME FedWatch tool.

The biggest risk for the U.S. Dollar is if the Fed casts doubt on a December rate hike.

Earlier in the trading session, Japan’s trade balance returned to surplus in August as exports rose 18 percent year on year boosted by brisk shipments of automobiles and electronic parts, the government said on Wednesday.

The world’s third-largest economy logged a surplus of 113.6 billion Yen ($1.0 billion), returning to the black after a deficit of 34.6 billion Yen a year earlier, according to data from the finance ministry.

The figure was however much lower than market expectations of a 356.7 billion Yen surplus.

In other news, imports grew 15.2 percent for an eighth monthly rise, boosted mainly by higher bills for coal, liquefied natural gas and crude oil.

In summary, the trade data was strong. Imports were strong, but exports were stronger, making this a positive development.