The yen is at a critical juncture—BoJ rate hikes and US trade policies could set the tone. On Wednesday, February 19, Japan’s trade data will put the USD/JPY pair and the Bank of Japan in the spotlight.
Economists forecast Japan’s trade balance to shift from a ¥130.9 billion surplus to a ¥1,200 billion deficit. Meanwhile, exports are predicted to rise 7.9% year-on-year in January, up from 2.8% in December, with imports also expected to surge.
Rising overseas and domestic demand could signal stronger economic activity in Q1 2025. Following private consumption’s resilience in Q4 2024, import trends indicate domestic consumption could fuel demand-driven inflation, supporting a Bank of Japan rate hike. With trade contributing around 47% to GDP, rising exports would also contribute to Japan’s economic growth.
Beyond the headline data, US-Japan trade relations remain in focus. While Japan’s overall trade balance is expected to shift to a deficit, a widening US-Japan trade surplus may draw US President Trump’s attention. Tariffs on Japanese goods and services could weaken demand, impacting the labor market and wage growth. Softer wages would dampen demand-driven inflation and lower expectations for a near-term BoJ rate hike.
Shifting to the US housing market, key sector data will influence US dollar demand. Economists predict building permits will fall 0.8% in January after a 0.7% drop in December, while housing starts are expected to tumble 9%.
Given economists consider the housing sector a barometer for the US economy, weaker readings could signal softening consumer sentiment. A decline in sentiment may affect spending and inflation, potentially pulling the USD/JPY pair toward 150. Conversely, stronger housing data could support a more hawkish Fed rate path, driving the pair to the crucial 153 level.
