The Japanese economy has been showing convincing signs of strength throughout the month of August.
Despite softer than expected imports, Japan still managed to beat Q2 GDP expectations. Economic indicators like the PMIalso signal growth. However, despite the strong GDP outlook, Japan’s inflation rate remains dismally below the Bank of Japan’s targets, leaving the possibility of rate hikes firmly off the table. While the United States is also suffering from lower than expected inflation, Japan’s situation is much worse, and I expect the USD/JPY (FXY) to fall, indicating a strengthening of the dollar against the yen.
- The Japanese economy is showing strong GDP growth but inflation remains stagnant.
- The country suffers from intractable deflationary pressures.
- Cultural attitudes and inefficiency seem to be preventing monetary policy from working properly in Japan.
- There is more downside for the yen.
Japan Still Faces Deflation Risk Despite Economic Growth
Japan’s gross domestic product grew at an annualized 4%, beating the 2.5% expected for the second quarter. But I do not believe this economic growth is enough to support the yen because deflation is still a major concern, making rate hikes impossible. Japan’s inability to generate inflation may be due to stagnant wage growth along with disfavorable demographic trends such as an aging workforce and labor shortages. Paradoxically, the shortage in the labor force is not resulting in significant wage growth, and this may be due to cultural factors that are difficult to measure or fix.
Japan’s May 2017 unemployment rate was only 2.8% compared to 4.3% in the United States. However, despite enjoying the conditions for strong inflation, the Japanese economy still fails to meet BOJ targets by a staggeringly wide margin. The BOJ’s current target is 2.00% while inflation remains flat at 0.4%. Wages are probably the driving factor behind the weak inflation. Japan’s monthly average wages are still significantly below 2008 levels after almost half a decade of stimulus. This could be due to a variety of cultural factors such as a reluctance to request wage increases or inefficient employment practices.
Overall, the bias in prices is: Downwards.
Short term: Prices are stalling.
Intermediate term: Prices are ranging.
By the way, prices are vulnerable to a correction towards 111.23.
The projected upper bound is: 110.54.
The projected lower bound is: 107.71.
The projected closing price is: 109.13.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 2 white candles and 8 black candles for a net of 6 black candles. During the past 50 bars, there have been 19 white candles and 31 black candles for a net of 12 black candles.
A hammer occurred (a hammer has a long lower shadow and closes near the high). Hammers must appear after a significant decline or when prices are oversold (which appears to be the case with FOREX JPY=) to be valid. When this occurs, it usually indicates the formation of a support level and is thus considered a bullish pattern.
A hanging man occurred (a hanging man has a very long lower shadow and a small real body). This pattern can be bullish or bearish, depending on the trend. If it occurs during an uptrend it is called a hanging man line and signifies a reversal top. If it occurs during a downtrend (which appears to be the case with FOREX JPY=) it is called a bullish hammer.
A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.
Rex Takasugi – TD Profile
FOREX JPY= closed down -0.070 at 109.170. Volume was 8% below average (neutral) and Bollinger Bands were 41% narrower than normal.
Open High Low Close Volume
109.250 109.260 108.250 109.170 99,746
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 109.38 111.20 112.52
Volatility: 7 8 11
Volume: 105,434 105,581 120,074
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX JPY= is currently 3.0% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of JPY= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on JPY= and have had this outlook for the last 26 periods.
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