ECB and China to drive USD/JPY in near term

This week will likely be another quiet one before the much-awaited 30 October BoJ meeting next week. Hence, USD/JPY will likely be driven by overseas development, including the ECB and China data, as well as fluctuations in global risk sentiment. 

Meanwhile, markets will continue to watch for hints on fundamental development, as well as their implications for BoJ policy, given the downturn in Q3 data. Having said that, last week's upside surprise in August composite index of consumption suggests that risk of technical recession appears less likely (although downside risk to capex and inventory remain). 

This week, the September trade balance and the August Index of All-Industry Activity will shed some more light on the underlying economic trend. 

"The September trade balance (nsa) is likely to turn positive at JPY262bn, the first surplus in six months. On seasonally adjusted basis, a deficit of -64bn is expected. The August Index of All-Industry Activity is likely to decline -0.2 % m/m", says Barclays.