Scan to Download ios&Android APP

Will the Japanese yen face more pressure?

13:17, 16 March 2022

Share this article
In this article:
  • USD/JPY

    135.287 USD
    0.284 +0.210%

Have a confidential tip for our reporters?

Tokyo's central business district
Tokyo’s central business district – Photo: Shutterstock

The sinking Japanese yen is unlikely to get support soon as its trade balance is expected to weaken further and the central bank remains shy of raising interest rates. 

Data released on Wednesday (16 March) showed that its trade deficit widened more than market expectations to JPY668.3bn ($5.65bn). The oversold JPY held steady on Wednesday with the USD/JPY flat at 118.32. However, experts predict that the currency will come under more pressure. 

“Exports are expected to mark time in the future. The number of new infections in Europe is experiencing a rebound, causing a decline in human traffic, and Asia has also experienced a sharp increase in infections,” said Kazuma Kishikawa, economist at Daiwa Institute of Research. 

“The spread of infections will likely hamper the global economic recovery and make it difficult for exports from Japan to grow. It will likely be necessary to watch the channels through which Japan’s domestic imports will be affected. A decrease in imports of items such as those highly dependent on Russia could have a negative impact on the supply chain of key domestic industries,” Kishikawa added.

Trade balance under pressure

A widening trade deficit will add to the pressure on the Japanese yen as it pays more for imports than it earns via exports. However, Tom Learmouth, Japan economist at Capital Economics, has a more bullish view on Japan’s trade prospects. 

“Exports fell again in February, though they should rebound over the coming months, provided the recent Omicron outbreak in China doesn’t cause major supply chain disruptions to resurface,” said Learmouth. 

Meanwhile, the Bank of Japan (BOJ) is unlikely to budge from its loose monetary policy at its two-day meeting starting on Thursday (17 March), with inflation still evading the country. 

Further pressure on the yen against the US dollar is likely because the Federal Reserve is widely expected to make its first rate hike since December 2018.

What is your sentiment on USD/JPY?

135.287
Bullish
or
Bearish
Vote to see Traders sentiment!

Inflation still far from target

Consumer inflation remained at around 0.2% in January in Japan, much lower than the central bank’s target of 2%. An official survey conducted by the government showed that households expect inflation to rise to 2.6% in March, largely driven by higher energy prices, due to the war in Ukraine. 

The BOJ remains more conservative, though. At its previous meeting in January, BOJ members were willing to accept a slowly depreciating yen as they wait for inflation to reach its target range and remain there sustainably with an adequate increase in wages.

As a result, while households expect an increase in inflation due to short-term factors, the central bank is unlikely to budge from its easy monetary policy. 

Read more

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading