The phrase loose lips sink ships originated on American propaganda during World War II, created by the War Advertising Council to educate soldiers not to disclose too much information that the enemy may inadvertently hear through their spies. Perhaps Shinzo Abe would have regretted not putting up similar posters in his office, as his closest adviser – Hamada, shot himself in the foot earlier, saying that there is a need to raise sales tax in the future. Furthermore, he said that sales tax is needed to support long-term finances of the Government, but the decision remains firmly in Shinzo Abe’s court, suggesting that he has already proposed a hike to Abe. Predictably, the market was spooked, as it flies in the face of Abenomics’ promise, which is a growth supportive accomodative policy. Nikkei 225 collapsed close to 500 points within the hour, while USD/JPY went under, giving up all the gains made during US hours after Ben Bernanke’s reassurance that the QE show will go on.
From a technical perspective, USD/JPY bears may simply say that a bearish correction has been a long time coming, with price unable to break above the rising trendline following Bernanke’s testimony. Price did dip below 100.5 following the 1st rejection, but still managed to push higher due to early Asian optimism which weakened JPY due to risk flow. However, the 2nd attempt did not manage to claim grounds above the trendline, and with Stochastic readings entering Overbought region once more, suggest that a bearish correction right now should not have been too surprising.
Currently, price is testing the 100.0 round number support. Should 100.0 gets broken, it is possible that further support could be sought from the Kumo below. Stochastic readings agrees with such an outlook, with readings already closing to Oversold, and suggest that a bullish cycle may be more likely in the future.
Fundamentally, what Hamada said happened at the worst opportune moment. Even though it is understandable that taxes will need to increase eventually, it is unlikely that his statements will go down well to voters who will be voting for the House of Councillors members this Sunday. Even though Hamada did say that sales tax should be increased “in the future”, expect opponents to twist his words and play it to their advantages. If Shinzo Abe’s Liberal Democratic Party indeed loses influence in the House, expect opponents of Abenomics to stand taller and louder in the next few months, which would mean that Abenomics implementation will be much harder and the economic recovery much more difficult.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.