Yen moves lower following weak trade data

Summary:

• Japanese currency is placed among top losers in G10 after the trade data for January
• BoJ’s Kuroda delivers comments on the current stance of the central bank
• Japan’s companies express a subdued outlook for CAPEX and wage growth

Japan’s exports decline

The Japan’s yen is falling roughly 0.2% against the US dollar in early European trading after the trade data showed a huge exports decline in January. Exports fell as much as 8.4% YoY, recording its second consecutive monthly drop for the first time since 2016. The market consensus had pointed to a 5.7% YoY decrease. The deeper decline in exports during the first month of the new year raised concerns about slowing global demand. Earlier this week we also got the gloomy data on machinery orders.

Japan’s exports shrank in January raising concerns about slowing global demand. Source: Bloomberg, XTB Research

At the same time imports declined 0.6% YoY beating the median estimate of a 3.5% YoY decline. Trade data concerning the China’s economy deserves particular attention given the current tensions between the US and China but also Japan could be affected having a notable trade surplus with the US. In January Japan’s exports to China dwindled as much as 17% YoY and reached the lowest level in two years. Keep in mind that China is the Japan’s largest trading partner and exports to this destination rose 30% YoY in January last year. However, the trade data could have been also affected by the Chinese Lunar New Year, hence it seems to reasonable to wait for another month to analyse the combined data for two months. Nevertheless we reckon the entire disappointment in Japan’s exports data cannot be tied solely to one-off factors as we saw a widespread decline in other destinations as well. For instance, Japan’s exports to Asia, which account for more than half of overall shipments, fell 13.1% YoY while exports to the European Union declined 2.5% YoY.

Rising surplus with the US

On the other hand, we got a 6.8% YoY increase in exports to the United States, led by shipments of cars, pushing the Japan’s trade surplus with the US higher by 5.1% to 367.4 billion JPY despite a 7.7% YoY rise in imports. It was the first increase of exports in seven months. Taking that into account Japan-based manufacturers could become concerned that the Trump administration might decide to impose tariffs aimed at dialing back such a surplus. It needs to be added that Japanese cars make up roughly ⅔ of Japan’s imports to the US making potential duties on cars an important tool in the hands of Washington. Bear in mind that Japan is among top five countries having the largest trade surplus with the US.

The longer-term chart of the USDJPY suggests that the pair is approaching its critical resistance line nearby 111. Even as fundamentally the yen seems to be well below its “fair value” in the shorter-term it is mainly driven by risk sentiment, thus if the US and China reach a trade accord, it could be yen negative. Source: xStation5

In the other news:

• BoJ’s Kuroda said that he did not believe the current BoJ policy was weakening the yen adding that the policy was aimed at stabilising prices and this was understood by the US

• According to a Reuters poll Japanese firms share a subdued outlook for CAPEX and wage growth; more than 80% of surveyed companies expect 2019 wage hikes to undershoot previous year’s rises and almost 70% of them see overseas CAPEX flat for this fiscal year (almost 60% when it comes to domestic CAPEX)

• New Zealand’s PPI output prices rose 0.8% YoY in Q4 2018 while input prices rose 1.6% YoY

• Japan’s NIKKEI closed the day with a 0.6% increase, the China’s Hang Seng is rising approximately 1%, the SP500 futures trade 0.1% lower