Forex markets were calm at the beginning of the week as American and European traders took an Easter break. Meanwhile in Asia, news out of Japan set the stage for a further weakening of the yen, which has already suffered a decline against the U.S. Dollar by over 10% in the past 12 months.
The Japanese trade deficit, now in the 21st straight month, was far higher than analyst estimates, soaring to 1.7 billion yen compared to forecasts of 1.4 billion yen. The country’s exports in March rose by only 1.8% compared to last year, while projections were 6.5% and year-on-year imports went up by 18.1% – a number that was expected to be closer to 16.2%.
The wider trade gap was attributed by some to a surge in discretionary spending by consumers before a planned tax hike in April. Japanese department stores had the biggest sales increase in over 20 years – a massive jump of 25.4%. Investors also took note of slowing exports and the rising costs of the country’s energy imports.
Regardless of the poor numbers, the yen remained stable as it crawled up to 102.70 against the U.S. Dollar before easing back to 102.50 during Japan’s evening. However, in the short term, the USD/JPY rate looks to be heavily influenced by U.S. data. The greenback rallied above 102.00 last week due to an improved economic outlook for the American economy and a spike in the 10-year treasury yield.
A more reasonable approach may be to compare the yen with different currencies. Against its regional neighbors such as the South Korean Won, Australian Dollar and Chinese Renminbi, the yen’s decline during the day was noticeably sharper.
Japanese stocks opened higher on Monday, rising by almost a full percentage point at its peak. However, all gains were lost after the midday break as investors digested the negative trade report. The Nikkei index ended down 3.89 points while most of its Asian peers enjoyed moderate gains.