Japanese Consumer Confidence rose to 5 year high, but before we get too excited about Japan’s economic outlook, it is important to note that the figure came in at a paltry 44.8, lower than the 46.0 expected. A read below 50.0 also imply that overall confidence is still bearish, despite BOJ’s “bold and strong” monetary policy. An alternate view on the lower Consumer Confidence figure would be that BOJ’s impact is overly exaggerated. Just like the recent Tankan Survey disappointment, which implied that BOJ’s efforts are not as strong as we imagined as the survey results remain bearish, pushing USD/JPY lower significant post survey results release. However, there was little reaction this time round, and USD/JPY traded flat just under 98.5 but above the 98.25 interim resistance.
From a technical point of view, current bullish correction is significant especially after clearing 98.0 resistance. 98.5 is the next level that bulls will need to overcome with a break above 99.0 potentially reverting overall bias back into the bulls hands. Price has managed to break above the descending trendline is the first warning sign that the sell-off from 12th April has ended. The retest of the trendline without breaking back below around 97.5 is a testament of the overall strength of bulls, most probably due to continued faith in BOJ’s easing policies.Stochastic readings suggest that bullish momentum may stall soon though, as readings are no longer pointing higher but instead threatening to head lower from here.
Daily chart is bullish, especially since bears failed to break below 96.0 into the mid March consolidation range. Stochastic readings appear to be forming an interim trough which suggest that price may be able to re-test 100.0 once again. If price manage to reach 100.0, 261.8% Fib extension may provide some resistance which may press price back lower. It seems that market just keep on giving BOJ chances despite data not supporting what Kuroda et el are saying. Capex in Q1 has fallen, instead of gaining, while business surveys and now consumer surveys show that Japanese themselves are not so optimistic about their outlook. Perhaps this is what 2 decades of deflation does to you, but it seems that the only people truly excited about BOJ’s stimulus are foreign investors running on stimulus high. What this imply is that prices of USD/JPY and Nikkei 225 may correct sharply if global sentiment shift, assuming that fundamentals of Japan still does not improve. Also, should future data continue to show lack luster sentiment/business activities, we may see more and more foreign investors sobering up, which may result in correction of USD/JPY towards the downside.