Japan trade deficit unexpectedly widened in July after imports rose more than expected. The trade balance fell to -964bn yen from a revised deficit of 823.2bn, missing an expected shrinking of the deficit to 713.9bn.
The report highlights the importance of looking beyond the headline figures. A 2.3% y/y jump in imports would suggest at first glance that business spending is stronger than expected, but that may not be the case. The unexpected jump in imports can almost be entirely attributed to a 7% increase in fuel imports, which heavily skews the overall import number.
However, the other side of the report was mostly positive with exports increasing 3.9% y/y (expected 3.8%). This comes on the back of two consecutive months of negative year-on-year export growth due to a lack of international demand for Japanese goods. As we’ve explained in the past, with domestic demand being hampered by a lack of wage growth and a hike in the sales tax, the export market is one of the potential best sources of growth in the economy, especially with the yen remaining fairly weak.
One to watch: AUDJPY
As the market was digesting Japan’s trade data, RBA Governor Stevens was testifying to the House Economics Committee in Brisbane. Stevens didn’t give much away, but he did state that intervention in the FX market is on the table and that there would be no warning if the RBA elected to interfere with the Australia dollar. He also reiterated that many metrics suggest that it’s surprising that the AUD remains high.
The Governor also added that the most important factor behind economic growth is confidence – something we focused on in our Q3 report – and it cannot be provide by lower rates alone; noting that public spending is expected to remain subdued. The uncertain economic outlook is preventing many businesses from investing in growth, making the economy more vulnerable to falling mining investment.
Neither the aussie or yen reacted heavily to the event/data in their home countries, but AUDJPY is looking somewhat top-heavy from a technical perspective. There is a bearish divergence between short-term price action and RSI (see chart) and a possible head-and shoulders pattern, thus our bias is lower below 95.95.
Source: FOREX.com
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