Forex - USD/JPY gains on lackluster Japanese trade data

The dollar rose against the yen on Monday after Japan reported a wider-than-expected trade deficit, though the greenback's gains were limited due to uncertainty over the fate of Federal Reserve stimulus programs, which have kept the U.S. currency weaker in recent years to spur recovery.

In U.S. trading on Monday, USD/JPY was trading at 97.68, up 0.07%, up from a session low of 97.36 and off a high of 98.13.

The pair was likely to find resistance at 98.64, Thursday's high, and support at 95.93, the earlier low.

The yen slumped after official data revealed that Japan posted a larger-than-expected trade deficit of JPY1.024 trillion in July. Exports rose 12.2% on a year-over-year basis, boosted by a weaker yen, while imports climbed 19.6%.

Analysts were expecting a JPY786 billion trade gap.

In the U.S., a lack of data kept investors on the sidelines to await the release of the minutes from the Federal Reserve's July monetary policy meeting on Wednesday, which could provide clues as to when the bank may start to taper its USD85 billion monthly asset-purchasing program.

Mixed economic indicators out of the U.S. have created uncertainty over when tapering will begin, with many investors betting on September and others pegging an announcement in December.

Uncertainty capped the dollar's gains though rising bond yields earlier in the session allowed the U.S. currency to strengthen by stoking expectations that September could see a Fed announcement on plans to scale back stimulus tools.

The yen, meanwhile, was down against the pound and down against the euro, with GBP/JPY up 0.25% and trading at 152.88 and EUR/JPYtrading up 0.17% at 130.31.

The euro moved higher after Germany’s Bundesbank said the European Central Bank’s commitment to keeping rates low to spur recovery doesn't mean the monetary authority won't take action to curb rising inflation rates.

In its monthly report, Germany’s Bundesbank said the euro zone economy will benefit from record low interest rates set by the ECB, though the report added that the ECB’s pledge to keep borrowing costs low for an extended period would depend on the medium-term inflation outlook.

On Tuesday, the U.S. will see the release of the Chicago Fed National Activity Index, while Japan will release its All Industries Activity Index.