Market Analysis

Trade war ripples felt as Japanese exports tumble the most in two years

Official data from the Japanese economy earlier today showed Japanese exports tumbling during the month of December, as the ongoing trade war between the U.S and China started to take its toll on the nation’s exporters.

According to the Japanese Ministry of Finance, exports for the world’s third largest economy dipped the most in more than two years during the last month of 2018. December exports slumped -3.8 percent from the previous year, which was considerably worse than the +0.1 reading expected by economists and the biggest year-on-year drop since October 2016.

Aside from the unintended consequences of the U.S-China trade war causing the slump in exports, the Ministry of Finance also said that declining shipment orders and weak global demand hurt exporters in nations exporters in December. Yesterday the International Monetary Fund reduced its growth forecasts for the global economy and advanced economies for this and next year.

December’s dismal export data underscore how important the Chinese economy has become for the trade-reliant Japanese economy. China is now Japan’s largest trading partner and outstrips Japan’s trading relationship with the United States in terms of exports. A protracted period of worsening economic and political ties between the United States and China is likely to further impact upon Japanese economic growth.

Japanese import data also came in weaker than expected earlier today, with December imports increasing +1.9%, which was worse than +3.7% figure expected. Japan’s trade balance shifted to a deficit of 55.3 billion yen in December 2018 from a 356.2 billion yen trade balance surplus for the same period the year before.
The Bank of Japan kept interest rates and monetary policy unchanged earlier today, although it downgraded its inflation forecasts. The market reaction saw the benchmark Nikkei225 close down by close to half a percent, while the Japanese yen headed lower, losing ground against the US dollar and euro currency.


USD/JPY Daily Candlestick Chart | Source: ActivTrader Platform

USD/JPY Daily Candlestick Chart | Source: ActivTrader Platform


The psychological 110.00 level remains a major technical barrier for USD/JPY bulls, a sustained move above this key area will likely lead to a test of the important 110.40 area, with the 110.80 level offering the strongest resistance prior to the 111.00 level.

If we see the USD/JPY pair eventually weakening back under the 109.30 level, key technical support is found at the 108.90 and 108.10 levels.


Written by Nathan Batchelor, External Analyst


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