Japanese December Industrial Production figures came in below expectations, showing what we already knew – Japanese economy is sinking – and agreeing with yesterday’s tepid retail sales. Production growth increased from -1.4% previous month to 2.5%, but was much lower than 4.1% estimated. Y/Y fell 7.8%, lower than -5.6% estimated and much worst than previous month’s -5.5%. Yen was relatively muted, though Nikkei 225 fell during early Asian trade. But the decline in stocks can also be attributed to the much more surprising negative US GDP overnight and not wholly due to Japan’s own fundamentals.
As mentioned during the discussion of yesterday’s Retail Sales figure, Yen and to a lesser extend Japanese Stocks are running on current and future monetary policies bets on the BOJ. “Risk On” sentiment since the start of the 2013 is also helping USD/JPY to push further upwards. However, with the 1st negative print of US GDP in 13 quarters, we could see the “Risk On” bullishness erode quickly, pulling USD/JPY back down again.
Hourly Chart shows prices breaking 91.0, trying to hit below the low after US GDP announcement. From a technical point of view, bullish momentum has been broken with rising trendline broken, and reversal confirmation was given when price was not able to climb back above the trendline even after FOMC announcement. Support can be found around 90.50, which would most likely coincide with Stochastic hitting Oversold region should that happens.
This bearishness in USD/JPY is not immediately visible via the weekly chart, with price still forming a DOJI with a positive body. Though Doji represents uncertainty, it is in no way meaning that a bearish reversal is here. Nonetheless it is a sign of waning bullish momentum and we could see strong reversals when it happens as Stochastic shows that price is tremendously extended since its Sep 2012 lows.