USD/JPY analysis: Asia’s slowing trade is a growing problem

Key takeaways

Japan’s exports fell to a 2-year low of 2.6% y/y
Imports (domestic demand for international goods) contracted -2.3%
Exports to Asia contracted -6.3% y/y (-2.9% to China)
Exports to the US, New Zealand and Australia rose 12%, 10.2% and 6.9% y/y respectively
USD/JPY’s rally has stalled below the May high, where a pullback is favoured ahead of an eventual breakout
The Nikkei is within striking distance of its 201 high

Slowing trade is a growing problem across Asia as we make our way through 2023, which in turn is a drag on global growth prospects. Already we have seen Q2 trade data for China take a hit, alongside contracting PMI’s, a slump in loan demand and softer figures for retail sales, industrial production and investment. And today we see that Japan’s exports fell to a 26-month low of 2.6% and imports contracted at their fastest pace since February 2021.

Looking behind the headline numbers reveals a slump in demand for Japan goods across Asia, with exports to the region falling -6.3% y/y. Interestingly, exports to China are also down -2.9% y/y and demand falters with China’s economic recovery. Although with China encouraging domestic-consumption to support growth, we’d expect this trend to continue and weaken Japan’s growth (with China being their largest trade partner).

Nikkei head for 2021 with debt-ceiling hopes

Debt-ceiling talks between US President Biden and Republican House Speaker McCarthy made a positive step, with both announcing that a deal is on the horizon. The fact that it is being announced is almost inevitable, as there really is no other choice. But if there is a pleasant surprise, it is that it didn’t happen at the absolute last minute.

The positive development prompted a risk-on rally on Wall Street, sending the Nasdaq to a 9-month high, WTI up 2.8% and gold down to a low of 1975. This in turn has provided a positive lead for Asian indices to help the ASX rebound back above 7200 and the Nikkei extend yesterday’s breakout above 30,000.

USD/JPY daily chart

The pair has provided a strong rally since its based formed around the 200-day EMA last week, with a Doji. Yet the rally has stalled just beneath the YTD high – a level which prompted a selloff a couple of weeks ago – which leaves the potential for a pullback from current levels. RSI (2) is also oversold to warn of a near-term inflation point and a slight bearish divergence is forming in RSI (14).

Volume analysis of the rally shows heavy trading activity around 136.1, which could provide support should prices retrace before an anticipated breakout. But with a defiantly hawkish message from the Fed, a banking crisis that never and a dovish BOJ, an upside break if favoured sooner than later.

USD/JPY 1-hour chart

Whilst USD/JPY trades within a strong trend and bullish channel, there are early sigs of a potential top. A bearish engulfing candle and bearish pinbar formed on the 1-hour chart and the current candle is currently a bearish outside bar with high volume. Furthermore, none of the candles at the highs were able to test the May high.

A bearish divergence formed on RSI (2) leading into the highs and RSI (14) is now rolling over from the overbought zone. So we’re now seeking a countertrend move within the bullish channel whilst prices remain beneath 138.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.