Even though various members of BOJ and Abe’s cabinet have came out recently, telling us that Abenomics is working, making wonders for the Japanese economy. The latest economic data released today showed that maybe they are right, but the magnitude of impact has been exaggerated perhaps. National Consumer Price Index continues to be negative on a Y/Y basis, coming in at -0.7%, though the rate of decline is lower comparing to the -0.9% last month. Tokyo Consumer Price Index fared much better though, showing the first black figure of 0.1% since July 2011.
Industrial production continues to be negative, though similar to CPI, the pace of decline has slowed considerably with the latest number coming in at -2.3%, better than the -3.4% forecast and much stronger than the -6.7% of March. M/M figures remain healthy at +1.7% vs expected 0.8%. Manufacturing PMI stood at 51.5, the highest since July 2011, which is also encouraging, again highlighting the positive impact of Abenomics.
This is all fine and dandy, and there are some evidence showing that economy is turning around, even though we’re not fully out of the red zone yet. However, more evidences are needed to ensure that this turning around is sustainable, and not merely a short-term push. On that front, it is disconcerting that household spending has only grown by 1.5%, half of the expected 3.0% and 1/3 of previous month’s 5.2%. The backbone of consumer spending which is needed to drive demand based inflation which is ultimately BOJ’s target is not growing at the pace that Kuroda wants it to be. Is this a blip, or perhaps just telling us that BOJ and Abe has gotten it grossly wrong? Time will tell, but currently evidences doesn’t show that current Abenomics policy will be able to reach its target, with former BOJ Dep Gov Iwata saying yesterday that it will be difficult to hit the 2% inflation target within 2 years.
From a technical perspective, we can see that 101.0 is losing significance from the hourly chart. Price is finding a stronger support between 100.6 – 100.8. 101.2 resistance is still working, and yesterday’s foray above the level found further resistance just under 101.8, showing that short-term bears are still strong. However, divergence between Stoch troughs and price lows suggest that bulls are also holding their own strongly, which makes a case for price to continue to consolidate 100.6 – 101.6 for today as we approach the end of the trading month, where whipsaws tend to be more common.
101.0 is more important on the Daily Chart, where the level is preventing a move back towards 100. Stochastic readings has since “broken below” the previous stoch trough which is also the interim peak back in Mar 2013. This implies that price could move lower towards the Oversold region, and makes a stronger case for the 100.0 objective. However overall bias for price remains strongly bullish, and price will need to breach 100.0 and preferably 97.0 for bears credibility to increase under this backdrop.
With US stocks finally looking softer with yesterday’s GDP disappointment, we could be seeing a USD pullback in the short-term. If US stocks do correct sharply lower, this will be the best opportunity for USD/JPY bears to draw blood and go make a case for a strong bearish reversal. However, if price still remain elevated even in such and event, expect stronger bullish reply when stocks are back up once more.
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