Japanese Trade Surplus Rebounds

Analisi Giornaliera - 25/07/2016

Pace of Import Decline Outpaces Export Contraction, Sending Japanese Trade Balance Higher


While headline Japanese trade surplus rose to JPY 692.84 billion during the month of June, fueling optimism in Asia after the weekly reopening, the ongoing contraction in exports and imports continues to underscore the problems facing policymakers. With the Bank of Japan decision due later in the week, the Yen is trading slightly lower on stimulus speculation.

Japanese Import Contraction Deepens

Fundamental data in Japan continues to highlight the challenges facing the Japanese economy as Central Bank and Government officials work quickly to introduce new stimulus measures to help spur a rebound in trade and economic activity.  The one main lingering concern is inflation, with the consumer price index set to be released later in the week ahead of the monetary policy decision due from the Bank of Japan on Friday.  Trade activity is one considerably source of weakness after the Ministry of Finance data showed that imports slumping by -18.80% year over year.  Although the figure beat estimates of a -19.70% contraction, the pace of decline has raised some concerns about the outlook for the trade environment.  Meanwhile, exports eased their own pace of loss, shrinking by only -7.40% during June.  The Yen is trading slightly weaker against the US dollar after the weekly reopening, rising to 106.22.


Turkish Crackdown Endures

The crackdown against perceived Turkish dissidents continued over the weekend, with thousands of arrests and the seizure of assets belong to universities and other institutions tied to the Gulen movement.  The clampdown has drawn the ire of both the European Union and NATO, with far reaching concerns about the state of democracy in Turkey especially after reports of detention and torture.  Although Turkish equity markets are making a comeback during the trading session after a week of losses, the bounce may just be a temporary relief rally that could quickly reverse if the offensive against citizens and institutions persists.  Although there has been no response yet to Turkey’s official extradition request to the US to have Fetullah Gulen brought back to stand trial for his alleged crimes related to the overthrow attempt.  In the meantime, the Turkish Lira has improved modestly versus the Euro, with the EURTRY pair sliding to 3.3359.


China Potentially Kicks Off Trade War With Tariffs

Following a contentious meeting of the Group of 20 nations over the weekend in China, one of the main topics of discussion outside of the “Brexit” referendum and subsequent fallout was China’s policies of subsidizing key state industries, notably the steel industry.  The concerns were raised amid widespread dumping, or offering products for prices that are significantly below market rates in a move that is widely viewed as anti-competitive.  In response to the growing rhetoric from other member nations and tariffs slapped on Chinese imports, policymakers introduced taxes on steel imports from Japan, South Korea, and the European Union overnight designed to fight back, potentially sparking a trade war. While still early on, these measures could be expanded to other areas, risking full blown economic protectionism.  The offshore Yuan is trending slightly lower against the dollar to start the week, with USDCNH trading at 6.6875.


Oil Slide Persists

After reports late in the week from oil services giant Baker Hughes confirmed another rise in the US oil drill rig count, oil prices fell to their lowest levels since May amid resurgent concerns of another steep decline in oil prices amid higher production and weak demand growth.  One of the main problems facing the sector is building stockpiles of gasoline and other refined goods amid eased Chinese restrictions on teapot refiners which work independently.  Since production widely exceeds domestic demand, much of the surplus is shipped abroad, creating a glut that could force prices significantly lower.  Data due out later in the week from the Energy Information Administration might confirm that onshore inventories once again risk being filled, creating a disastrous set of conditions for the price outlook.  At present, crude oil is trending slightly weaker on the session, with the spread between Brent and WTI closing to $1.90.


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