Japanese yen weakened following release of Trade Balance statistics on Wednesday.

Following the announcement of Trade Balance statistics on Wednesday, the Japanese Yen (JPY) ended its three-day winning streak versus the US Dollar (USD). However, the JPY’s slide may be restricted by the increasing possibility of another near-term interest rate hike.

Bank of Japan to raise interest rates again by the end of the year according to a Reuters poll, more than half of experts anticipate.

Traders are also anticipating Bank of Japan (BoJ) Governor Kazuo Ueda’s presence in parliament on Friday. Discuss the Central Bank’s decision to hike interest rates last month.
Japan’s Merchandise Trade Balance slid into a deficit of ¥621.84 billion in July, reversing the surplus of ¥224.0 billion reported in June and falling short of market expectations of a ¥330.7 billion shortfall. This is the seventh deficit this year, as imports climbed far faster than exports.

The US dollar holding steady due to market caution ahead of the FOMC meeting minutes.

The US Dollar (USD) attempts to end a three-day losing streak as traders become cautious ahead of Wednesday’s FOMC Meeting Minutes for July’s policy decision. Furthermore, traders are anticipating Fed Chair Jerome Powell’s scheduled address in Jackson Hole on Friday.
The CME FedWatch Tool implies that the markets are currently pricing in a nearly 67.5% chance of a 25 basis points (bps) Fed rate drop in September meeting, down from 76% a day earlier. The chance of a 50 basis point rate drop fell to 32.5% from 53.0% a week ago.

Daily Market Movers: Japanese Yen falls after Trade Balance report.

According to a Reuters survey published on Wednesday, more than half of analysts believe the Bank of Japan (BoJ) will raise interest rates again by the end of the year. In the August 13-19 survey, 31 out of 54 experts expected that the Bank of Japan would raise borrowing prices before the end of the year. The median projection for the year-end rate is 0.50%, representing a 25 basis point increase.
Japan’s imports increased by 16.6% year-on-year in July, reaching a 19-month high of ¥10,241.01 billion, exceeding market estimates of 14.9% and substantially up from a 3.2% increase in June. This is the largest increase in imports since January 2023. Exports rose by 10.3% YoY to a seven-month high of ¥9,619.17 billion, surpassing the previous month’s 5.4% rise but falling short of market expectations of 11.4%.
On Tuesday, Federal Reserve (Fed) Governor Michelle Bowman cautioned against making any policy changes, citing continued inflationary risks. According to Reuters, Bowman cautioned against overreacting to individual data figures, which could erode previously made improvements.
According to Reuters, the Bank of Japan (BoJ) expected a strong economic rebound to help inflation reach its 2% objective on a sustainable basis. This would support more interest rate rises, after last month’s move as part of the Bank of Japan’s continued effort to unwind Years of significant monetary stimulus.

Financial Times, President Mary Daly of the Federal Reserve Bank of San Francisco reiterated.

According to the Financial Times, President Mary Daly of the Federal Reserve Bank of San Francisco reiterated on Sunday that the US central bank should reduce borrowing prices gradually. Furthermore, Federal Reserve Bank of Chicago President Austan Goolsbee cautioned central bank officials against maintaining a restrictive policy in place for longer than necessary, according to CNBC.
On Thursday, Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that the reports are simply positive overall, and “it supports the BoJ’s view and bodes well for further rate hikes, although the central bank would remain cautious because the last rate hike caused a sharp spike in the Yen.”
Japan’s Gross Domestic Product (GDP) increased by 0.8% quarter over quarter In Q2, it exceeded market expectations by 0.5% and recovered from a 0.6% loss in Q1. This was the highest quarterly growth since Q1 2023. Meanwhile, annualized GDP growth rose to 3.1%, beating the market forecast of 2.1% and reversing a 2.3% drop in Q1. This was the strongest annual expansion since the second quarter of 2023.
Jane Foley, senior FX strategist at Rabobank, believes that this week’s succession of US data releases, together with next week’s Jackson Hole event, will give the market with stronger insights into US policymakers’ likely moves. However, their major forecast is that the Fed would decrease interest rates by 25 basis points in September and possibly again before the end of the year.