USD/JPY Outlook: Buyers Emerging Amid Weak JPY, Fed Hawks

• In October, Japan’s imports increased significantly, widening the trade deficit.
• The Yen’s decline drives up import prices, hurting consumers and producers.
• Japan’s economy contracted in Q3 for the first time in a year.

Today’s USD/JPY outlook is slightly bullish as Japan’s economy further deteriorates. In October, Japan’s imports increased significantly compared to the same month last year, outpacing growth in exports and widening a trade deficit that has put significant pressure on the Yen.

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Therefore, the trade deficit is making things worse for consumers struggling to make ends meet in the face of rising import prices driven by currency fluctuations. It is also difficult for firms that depend on imports but find it harder to pass cost increases on to customers.

Over the past few decades, the third-largest economy in the world has relied on exports of processed goods like automobiles and electronics to thrive. Given the severe currency falls, policymakers in Japan are now more worried about the effect of soaring imports on its resource-poor economy.

“We expect Japan will continue to log a trade deficit going forward,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

Exports to China, Japan’s top trading partner, increased by 7.7% in October, with automobiles and audio equipment leading the way. However, the annual increase in September was 17.1%. The downturn implied that China’s zero-COVID policies had depressed demand, potentially impacting both Japanese shipments and the world economy.

According to government data released Tuesday, Japan’s economy contracted in Q3 for the first time in a year as imports outpaced exports and significantly reduced the country’s gross domestic product.

USD/JPY key events today

Investors will pay attention to the building permits and initial jobless claims reports from the United States. There will also be the national core CPI report from Japan.

USD/JPY technical outlook: Consolidation within the 140.53 and 138.03

Looking at the 4-hour chart, we see the price trading below the 30-SMA and the RSI below 50, showing bears are in control. However, the price is currently caught in a range with resistance at 140.53 and support at 138.03.

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The price is currently trading close to the range resistance. There is also resistance from the 30-SMA, which could see the return of strong bearish momentum. If bears take over at this resistance zone, the price will likely retest and break out of the range support.

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