USD/JPY – Big Week for Japan

USD/JPY is bid on another fall in trade data in the overnight session. Japan’s bigger-than-expected rise in its March trade deficit ($14b deficit)– imports surge and exports remain subdued — has encouraged investors to sell the yen. It seems that some are happy to treat the latest disappointment in the Japanese trade balance as reason enough for more speculation over the Bank of Japan (BoJ) turning less neutral in favor of more easing.

Japan’s March trade deficit is four times higher than last year’s print. Exports showed a negligible rise of +1.8%, year-over-year — well below the +6.5% consensus — while imports spiked by +18.1%, year-over-year, mostly due to another double-digit rise in shipments of crude oil.

It seems that bad news is still good news for USD/JPY as more QE is eyed by a percentage of the market.

There is event risk later this week for the pair:

• Obama visits Japan on Wednesday with the TransPac trade talks on his agenda.
• Large corporate earnings reports (fiscal year end March 31st)
• Tokyo April CPI on Friday

Tokyo’s CPI: The market expects a 2.8%, year-over-year inflation print in the Tokyo region – a reading well above the BoJ’s +2% target. It seems that the implementation of the sales tax hike on April 1 will have somewhat artificially boosted Japan’s inflation headline prints (companies passing on the sales tax hike to customers).

The BoJ has already recognized this and will adjust April’s inflation print downward by -1.7% to reflect a truer picture of inflationary pressures in the region. The problem is that the uptick in Japan’s inflationary pressures has been mostly due to yen weakness, and with no “fresh” weakness for months, the price of the CPI basket can only be expected to stall.

According to the techies the “long” USD/JPY positions remain in good shape – especially now that the pair has pierced the 21-DMA and tested the 50% Fib of the ¥104.13 – 101.32 range (¥102.72).

The Daily RSI continues to provide “positive” momentum. The lack of pullbacks would suggest that the market is not yet overbought. The medium term longs are still looking to penetrate the psychological ¥103 handle.

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