Last night, data continue to disappoint in Japan as we saw that the June exports drop 2.0% YoY, far below the 0.7% rise expected and down from +18.5% back in October last year. We picked the chart below from Zero Hedge, which shows the evolution of Japanese Exports (black line) since Abenomics (December 2012) against market’s expectations (orange line). As you can see it, we are back to levels we were before Abe took office in the last quarter of 2012, raising doubts about the Abe-Kuroda strategy. On the other hand, imports increased 8.4% from the same year earlier.
(Source: Zero Hedge)
The Finance Ministry reported that the Trade Balance deficit widened to 822bn Yen in June (vs 643bn Yen expected) and reached the two-year mark last month as exports failed to keep pace with surging imports. In the first half of the year, Japan’s trade deficit soared to a record 7.6tr Yen and is expecting to remain in the red area for the long term, which is becoming a serious issue for Japan PM Abe.
The Yen remained steady against the greenback on the news and has been trading within a tight 30-pip range (101.30 – 101.60) for the past few days. We believe that USDJPY looks vulnerable to the downside, and the first strong support stands at 101.00 (there are buyers around 101.00/10 and some at 101.25). As we mentioned it previously, a quiet equity market in Japan (Nikkei is range trading between 15,000 and 15,500) in addition to low US yields (10-year is back below the 2.5% since last week and now trading at 2.48%) make it difficult for the Yen to depreciate against the US Dollar.
Important figures to watch tonight are Japan June inflation data. The recent spike we saw after the sales tax increase (from 5 to 8 percent on April 1st) eased market’s expectations of further easing in the coming months, therefore capping USDJPY on the topside. The May nationwide core CPI rose 3.4% in May from a year earlier, the fastest since 1982, and is expected to ease down to 3.3% in June.
Even if we feel that USDJPY will remain under pressure in the coming weeks, we would position ourself on EURJPY at the moment after the spike we saw on the Euro. Short a current levels (137.00) with a first medium term target at 134.50.