The dollar traded near low on today as traders looked to next week’s Federal Reserve policy meeting for indications on how soon the U.S central bank will start to taper stimulus and also Japan exports increased peak place. The Federal Open Market Committee’s (FOMC) two-day policy meeting ending Sept. 22 should provide some clarity on the outlook for both tapering and eventual interest rate hikes. Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. It also means the central bank will be buying fewer debt assets, in effect reducing the number of dollars in circulation and increasing the currency’s value.

Today’s Reuters report suggests that Production at U.S. factories slowed more than expected in August amid disruptions from Hurricane Ida and lingering shortages of raw materials. Manufacturing output increased 0.2% last month, the Federal Reserve said on September 15. Data for July was revised to show production surging 1.6% instead of 1.4% as previously reported. Economists polled by Reuters had forecast manufacturing production would gain 0.4%. The raw materials crunch has been worsened by the latest wave of infections driven by the Delta variant of the coronavirus, primarily in Southeast Asia, as well as by congestion at ports in China.

Meanwhile U.S. authorities arrested more than 195,000 migrants at the U.S. border with Mexico in August, according to government figures released on Wednesday, deepening the humanitarian and political challenge confronting U.S. President Joe Biden as he struggles to curb the high numbers. While the numbers of arrests dipped slightly compared to July, they represent a increase compared with August 2019 when numbers had spiked before the coronavirus pandemic curbed migration around the world. Border arrests have hovered around 20-year highs in recent months.

While looking into Japan, exports extended double-digit gains in August, led by strong shipments of chip manufacturing equipment, although the pace of growth weakened as COVID-19 hit key Asian supply chains and slowed factory production. The trade growth is unlikely to dispel worries about the outlook for Japan’s economy, which has not yet recovered to pre-pandemic levels after taking an enormous hit from a collapse in global trade in the first quarter of 2020. Exports rose 26.2% in August compared with the same month a year earlier, the Ministry of Finance said on Thursday, marking the sixth straight month of double-digit growth as strong demand for chip-making equipment offset slowing U.S and European Union-bound shipments of cars.

Exports to the United States, the world’s top economy, soared 22.8%, as strong demand for power-generating machines offset a decline in car shipments. Shipments to Asia as a whole gained 26.1%, their slowest pace in five months, while those to the European Union advanced 29.9% in August. Imports jumped 44.7% in August compared with the same month a year earlier, versus the median estimate for a 40.0% increase, due to stronger demand for fuel and medical goods. That brought a trade deficit of 635.4 billion yen ($5.81 billion), the largest shortfall since December 2012 and bigger than the median estimate for a 47.7 billion yen deficit.

On the other hand Japan and the Association of Southeast Asian Nations agreed Wednesday to step up their efforts toward economic recovery following the coronavirus pandemic that has weighed on industrial output. The two sides will expand an action plan adopted last year covering goals on strengthening the resilience of supply chains, guaranteeing smooth trade procedures and promoting digital technology, their economy ministers said in a joint statement released after a videoconference report by kyoda news.  During the meeting, the ministers also agreed to ensure the entry into force of the Regional Comprehensive Economic Partnership free trade agreement by early January. The megadeal, also involving China, South Korea, Australia and New Zealand, was signed last year.

USD/JPY 4 Hour Chart:

Support: 109.07 (S1), 108.77 (S2), 108.43 (S3).

Resistance: 109.70 (R1), 110.04 (R2), 110.33 (R3).

Being Japan exports showing strong growth and worries over the US dollar ahead of FOMC and US factory production slower the US economy. We expect a bearish trend for USD/JPY.