As the third largest economy in the world, Japan plays a very important role in the world. It is a top trading partner with the United States, China, and European Union. In 2017, the country exported goods worth more than $694 billion and imported goods worth more than $632 billion. Most of these exports went to China ($136 billion), EU, and US ($125 billion). The biggest export goods are vehicles. In 2017, the country exported vehicles worth more than $101 billion. Other major exports are car parts, integrated circuits, industrial printers, and machinery.
Therefore, the trade data from Japan are watched closely by the market. Like China, signs of weakness could mean that the world economy is not strong enough. Today, the country released these trade numbers. In March, the exports contracted by 2.4%, which was better than the decline of 2.7% that was expected. The exports have been falling since December last year. Imports on the other hand rose by 1.1%, which was a smaller increase than the 2.6% that was expected. In February, the imports had contracted by 6.6%. As a result of better exports and weaker imports, the country’s trade surplus increased to ¥529 billion, which was higher than the expected ¥372 billion. This was the biggest increase in surplus since July 2018. The adjusted trade deficit was at ¥0.18 trillion.
The country also released the industrial production number for February. This data measures the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. In the month, the industrial production increased by 0.7%, which was lower than the expected 1.4%. The capacity utilization refers to the extent to which an enterprise or country uses its installed productive capacity. In the month, the capacity utilization rose by 1.0%, which was better than expected. It was the highest it has been since December last year.
This data shows that the Japanese economy is likely not as weak as the market expects. The biggest challenge the economy is facing is the low rate of inflation. This is mainly because the population is aging, the consumer spending is not that high, and the people tend to work and save too much. This presents a major risk to the economy in case of a global recession. This is because with the interest rates being in the negative territory, and with quantitative easing continuing, the bank does not have the tools to deal with such a situation.
The USD/JPY pair has been gaining this week. The pair has jumped from a low of 110.87 to a weekly high of 112.16. On the chart below, the price is along the 50-day and 25-day moving averages. The MACD has remained relatively unchanged. In the near term, the pair could drop to the 50% Fibonacci Retracement level of 111.50.