Yen Softens After Japan Posts Record Trade Deficit

On Wednesday, data released by Japan's Ministry of Finance showed that the nation posted a November trade deficit of 1.29 trillion yen ($12.56 billion).

The yen weakened for the first time in four days against the U.S. dollar on the news, edging closer to the 5 year low reached last Friday.

Oil and gas purchases helped to force imports 21.1 percent higher to 7.19 trillion yen, while exports rose 18.4 percent to 5.90 trillion yen. While a weaker yen has aided exporters, it has also increased the price of imported fossil fuels.

Japan's energy imports have spiked higher due to the closure of Japan's nuclear reactors after the 2011 Fukushima disaster.

Abenomics

Japan's Prime Minister Shinzo Abe entered office in 2012 with a plan to control the strength of the yen, his broader strategy for economic growth often referred to in the press as "Abenomics." In April, the Bank of Japan announced their large scale bond-buying program geared to stimulate the Japanese economy and prevent deflation.

The yen continued on its latest leg of weakeness last month after Bank of Japan Governor Haruhiko Kuroda reaffirmed the central bank's commitment to accommodative monetary policy, in order to reach its two percent inflation target.

GDP Slowdown

Earlier in this month the yen softened after data showed that Japan's third-quarter economic growth came in at a final reading of 0.3 percent, below an initial reading of 0.5 percent.

FOMC Meeting

On Wednesday, the FOMC policy announcement and updated economic projections are due at 2:00 p.m. EST. Chairman Bernanke will hold his final quarterly press conference at 2:30 p.m. EST.

Investors are anticipating whether the Fed will taper its monthly $85 billion bond-buying program.

A decision to refrain from tapering could pressure the U.S. dollar while the yen may draw strength from a more 'risk off' environment, due to its appeal as a safe haven.

USD/JPY Daily Chart