USD/JPY regains ground as Japan’s growth seen slowing down

The yen fell against the US dollar, after trading little changed in the last two days, on expectations Japans economy may slow down in 2014, due to an unprecedented trade deficit and an April sales-tax increase, which could undermine BoJ efforts for sustainable recovery.

USD/JPY touched a session high at 102.61 at 05:15 GMT, after which consolidation followed at 102.48, adding 0.2% for the day. Support was likely to be found at February 20th, 101.67, while resistance was to be met at February 18th high, 102.75.

Japan’s Ministry of Finance reported yesterday that the nation’s trade deficit widened to a record last month, with imports exceeding exports by 2.79 trillion yen (approximately $27.4 billion), widening the full-year trade deficit for 2013 to an unprecedented 11.5 trillion yen.

Following the report, Credit Suisse Group AG trimmed its economic growth forecast for Japan in 2014 to 1.6% from 2.2% previously.

Japan increased its import bill after the March 2011 disaster in Fukushima, made the country shut all 48 operable nuclear reactors and rely on imports of crude oil and gas. With no set date for restarting them, Japans import bill continues to weigh on the nations economy.

Volumes of energy imports have not increased significantly compared to a year ago, but their dollar value has soared amid weakening yen, which is a result of unprecedented BoJ stimulus in an attempt to snap 15 years of deflation.

A five percent increase in the volume of Japanese crude oil imports in January from a year ago, resulted in a 28% percent surge in its cost. In addition, food import costs have risen 14% in January, compared to the previous year.

Bank of Japan has been purchasing more than 7 trillion JPY (68.4 billion USD) of government bonds each month in its struggle to achieve 2% inflation in two years since April 2013.

BoJ’s policy board member Takahide Kiuchi said last week that the central bank had to be cautious, when deciding to ease monetary policy further to offset the effect of a sales tax increase in April, because this could have negative side effects.

The yen devalued 18% against the US dollar last year, the most since 1979, but in January the currency rebounded 3.2% as a slump in emerging markets, fueled demand for haven assets, such as the yen.

A Bloomberg News survey of 35 economists, showed an unanimous forecast that the BoJ will expand its monthly bond purchases program worth 7 trillion yen, with only two of the respondents predicting the central bank will achieve its inflation goal by the target period, April 2015.

Meanwhile, the minutes of Federal Reserve Bank’s policy meeting on January 28th-29th showed that several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to pare back the central bank’s monthly monetary stimulus by 10 billion USD at each meeting.

As the rate of unemployment decreases at a faster than expected pace, even while other labor-market indicators signal weakness, bank’s policy makers agreed that it would “soon be appropriate” to revise their guidance about the time horizon of record-low borrowing costs.

Federal Reserve President for St. Louis, James Bullard, and Fed President for Dallas, Richard Fisher are expected to take a statement later in the day, while Fed Chair Janet Yellen will attend a meeting of G-20 finance ministers and central bankers in Sydney.

Yesterday the Bureau of Labor Statistics in the United States said in a report that the index of consumer prices rose 0.1% in January compared to a month ago, in line with analysts’ estimates and after the index gained 0.2% in December. The annualized consumer price inflation came in at 1.6% last month, matching the median experts’ forecast and following a 1.5% increase in December.

Core consumer prices, which exclude the volatile food and fuel categories, also advanced 0.1% in January compared to the preceding month, while the annualized core consumer price inflation reached 1.6% in January.

Additionally, the number of initial jobless claims in the country fell by 3 000 to 336 000 during the week ended on February 15th, while preliminary estimates pointed a decrease to 335 000 claims.

Elsewhere, AUD/USD touched a session low at 0.8982 at 6:30 GMT, after which consolidation followed at 0.8980, losing 0.18% for the day. The pair was down 0.50% for the whole week, or the first weekly loss since the week ended on January 24th. Support was likely to be received at February 20th low, 0.8937, while resistance was to be encountered at February 20th high, 0.9020.