The Japanese Yen (JPY) experienced a decline following the release of Japan’s Merchandise Trade Balance data on Wednesday. The report unveiled a notable increase in the trade deficit, surging to ¥462.5 billion in April from the previous surplus of ¥387.0 billion. This figure surpassed market projections of a deficit of ¥339.5 billion. The deficit was predominantly attributed to the recent depreciation of the JPY, leading to a surge in import values, which outweighed gains from increased exports.
Japan’s Exports (YoY) exhibited growth of 8.3%, amounting to ¥8,980.75 billion, marking the fifth consecutive month of expansion but falling short of the anticipated 11.1% increase. Imports also witnessed an 8.3% expansion, representing the strongest growth in 14 months, reaching a four-month peak of ¥9,443.26 billion. This reversal of the trend followed a revised 5.1% decline in March.
US Dollar Strengthens Ahead of FOMC Minutes Release
Meanwhile, the US Dollar (USD) saw advancement ahead of the release of the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, expected to be published on Wednesday. The uptick in US Treasury yields provided support to the Greenback.
Market Movements and Policy Outlook
Market dynamics indicated a depreciation of the Japanese Yen amid hawkish sentiments expressed by Federal Reserve officials. Japan’s 10-year government bond yield surpassed 1% on Wednesday for the first time since May 2013, fueled by traders’ speculations regarding further policy tightening by the Bank of Japan in 2024.
According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September experienced a slight increase to 50.3%, compared to 49.6% the previous day.
Federal Reserve Bank of Boston President Susan Collins emphasized the need for patience in adjusting interest rates, while Federal Reserve Governor Christopher Waller underscored the necessity of observing sustained positive inflation data before considering policy easing.
Market Sentiment and Technical Analysis
Market sentiment hinted at the possibility of the Bank of Japan reducing bond purchases at the June policy meeting. Technical analysis of the USD/JPY pair revealed a potential retest of the upper boundary of the ascending triangle near the psychological barrier at 157.00. A breach above this level could propel the pair towards higher levels, while immediate support lies around 155.50, followed by the 21-day Exponential Moving Average (EMA) at 155.33.
Overall, market participants are closely monitoring policy developments and economic indicators, anticipating their impact on currency movements and trading strategies.
