Japanese Trade Deficit At Highest Point in 2-Years

While most analysts projected sustained growth for the Japanese export economy, trade encountered headwinds during January after exports grew by a meager 1.30% compared to the consensus estimate of 4.70% expansion.  This contrasts sharply with the 5.40% annualized pace of increase in December while growth in trade came from the import side of the equation.

During the same annualized period, imports rose by 8.50%, surging beyond projections of 4.70% and well above the -2.60% contraction reported a month earlier.  Import growth outpacing the rise in exports brought the trade deficit to JPY -1.087 trillion for the period, marking the lowest point in the figure in 24-months.  However, import growth is positive and may be a strong catalyst for inflation gains in the coming months if the trend persists.  After sliding on Friday, USDJPY is back on the climb following the data.

Capping off a fifth straight week of gains, US oil services giant Baker Hughes reported that active oil drill rigs rose by 6 last week, bringing the total number of operational rigs to 597 last week.  Gains in production lag upside in the rig count, suggesting that further upside in US output is likely over the coming weeks absent another steep slide in energy prices.  Nevertheless, crude oil prices remain range-bound as OPEC reaches its own goals.

However, there is a chance that after 6-months the deal is abandoned, with certain members signaling they have little intention of extending the terms.  Furthermore, the risk of US onshore inventories filling after last week’s record print indicates that producers may be forced to dump surplus output on the open market, driving prices lower.  Brent futures are trending slightly higher on the session following a flat close on Friday.