USD/JPY Likely to Gain Bearish Momentum if Japanese Trade Balance Continues to Gain Traction

Asif Imtiaz
September 14, 2020

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USD/JPY Forecast & Technical Analysis

Japan – Trade Balance

On Tuesday, at GMT 11:50 p.m., the Japanese Ministry of Finance will release the month-over-month national trade balance figure. It measures the difference in value between the total imported and exported goods over the last month. This data is usually reported by being seasonally adjusted in order to gauge the true changes in the trade balance situation of Japan.

The demand for a nation’s currency is directly correlated to the export it makes minus the net imports. Because foreigners must convert their currency to Yen in order to pay Japanese exporters. Hence, XM traders in Japan consider the trade balance to be a leading indicator of a currency’s strength.

Last month, the Japanese trade balance figure came out at -0.0.3 trillion (yen). The trade balance has gradually improved since May 2020 when it reached – 1.0 trillion. If the improvements continue, it will have a bullish effect on the Japanese Yen.

United States – Retail Sales

On Wednesday, at GMT 12:30 p.m., the US Census Bureau will release the national month-over-month retail sales figure. It measures the changes in the total value of all sales made at the retail level in the country over the past month.

Retail sales data are considered by CFD brokers to be the primary gauge of consumer spending and confidence. This is because consumers spend more when they are confident about their future financial situation. 

Last month, the US retail sales value increased by 1.2%. Analysts are expecting it to increase by 1.1% this month.

USD/JPY Forecast

USDJPY Forecast - 14th September 2020

After the COVID-19 induced volatility in March ended, the USD/JPY has been trading within a narrow range over the last few months. Since the middle of June, the range has been getting narrower. During the last few weeks, it traded between 105.30 and 107.00, with a pivot zone around 106.00. Earlier today, it penetrated this pivot level, but currently trading just above it. Also, the RSI indicator on the daily chart for USD/JPY is hovering near the 50.0 level, indicating a lack of directional momentum in the market.

The Japanese  Trade Balance reached the low of a negative trillion Yen in May. Over the last few months, it went up and reached near breakeven. Given the current momentum in improving international trade, there is a good chance that it will come positive this month. By contrast, the US retail sales will likely drop from a 1.2% increase last month to 1.1%. We believe it would set a bearish fundamental outlook for the USD/JPY this week. Therefore, if the USD/JPY closes below the support near 106.00, it would likely attract additional bearish momentum in the market.

Hence, Forex traders should look out for trading opportunities below this major support level around 106.00.

Author Asif Imtiaz

Market Analyst / Trading Consultant . Asif worked as a prop trader for almost a decade, and later he managed trading operations for one of the largest foreign exchange strategy developers in Europe. Currently, he works as a trading consultant to several brokers and writes about various tech and financial topics. You can reach him at