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Is BOJ's Intervention Hiding Behind Inflation Data? Is BOJ's Intervention Hiding Behind Inflation Data? Japanese inflation data is scheduled for release on Thursday, but its impact on the market might be subdued. Investors could prefer to pay attention to next week's quarterly growth and price forecasts from the Bank of Japan, which could be the real market movers. According to sources cited by Reuters, the Bank of Japan is transitioning towards a more flexible approach in its policy decisions, placing less emphasis on inflation targeting. The upcoming April 25-26 policy meeting will see the release of the Bank's quarterly growth and price projections. This shift in strategy suggests that the Bank of Japan may signal a willingness to raise interest rates irrespective of inflation forecasts, which are anticipated to remain around 2.8% or possibly dip slightly to 2.7%. On the technical side, the USDJPY pair could maintain an upward bias, with buyers potentially pushing it towards the 155.00 mark. Recent fluctuations in the USDJPY pair have prompted speculation about possible intervention by the Bank of Japan. After hitting a new high dating back to 1990 at 154.705, the pair experienced a swift and unusual downturn. Market watchers are closely monitoring the 155.00 level, considered another more likely potential intervention threshold by the Bank of Japan. Following a dip to 153.890, the pair rebounded towards 154.775, supported by neutral to hawkish remarks from US Federal Reserve officials. Fed Chair Powell, speaking at a panel discussion in Washington, highlighted the strength of the labor market and progress on inflation, suggesting the Bank was comfortable with allowing “restrictive policy further time to work”.
by BlackBull_Markets
4
Yen Traders Tread Cautiously as Japan Hints at InterventionAnxiety hangs heavy over the yen market. With the Japanese currency hovering near a 34-year low against the U.S. dollar, traders are wary of potential intervention from Japanese authorities. This comes as Finance Minister Shunichi Suzuki reiterated the government's concerns about the rapid depreciation of the yen. The Yen's Slide: A Perfect Storm The yen's recent decline can be attributed to a confluence of factors: • Divergent Monetary Policies: The Bank of Japan (BOJ) has maintained its ultra-loose monetary policy, keeping interest rates near zero, while central banks like the U.S. Federal Reserve are aggressively raising rates to combat inflation. This widening interest rate differential makes the dollar a more attractive investment compared to the yen. • Global Risk Aversion: As geopolitical tensions and concerns about a global economic slowdown escalate, investors are seeking refuge in dollar-denominated assets, further weakening the yen. • Japan's Trade Dependence: Japan relies heavily on imports for essential resources like energy and food. A weaker yen makes these imports more expensive, potentially fueling inflation within Japan. Verbal Intervention: A Warning Shot Finance Minister Suzuki's recent statements can be seen as a warning shot to currency markets. He emphasized the government's "deep concern" about the yen's depreciation and hinted at the possibility of intervention if excessive volatility persists. However, the effectiveness of verbal intervention is debatable. Without concrete action, traders might remain skeptical. Intervention: A Double-Edged Sword Direct intervention in the currency market involves the Japanese government selling dollars and buying yen to artificially strengthen the currency. While this can achieve short-term results, it comes with drawbacks: • Costly Defense: Intervention can be expensive, draining Japan's foreign currency reserves. • Market Distortion: Heavy intervention can distort market forces and create uncertainty for traders. • Limited Effectiveness: The effectiveness of intervention depends on the size of the intervention and the broader economic backdrop. If underlying economic fundamentals favoring a weaker yen persist, intervention might have only a temporary impact. Traders on Edge: Waiting for the Next Move Yen traders are currently in a wait-and-see mode. They are closely monitoring the Japanese government's actions and statements, along with the Federal Reserve's monetary policy decisions, for any signs that could influence the yen's direction. The Road Ahead: A Balancing Act The future path of the yen will be determined by several factors: • The BOJ's Monetary Policy: Any change in the BOJ's stance, even a hint of a future rate hike, could strengthen the yen. However, the BOJ is expected to remain dovish for the foreseeable future. • Global Risk Sentiment: If global risk aversion eases, investors might be less inclined to seek refuge in the dollar, potentially aiding the yen. • The Effectiveness of Intervention: If Japan intervenes in the currency market and does so decisively, it might provide temporary support to the yen. Conclusion: A Fragile Currency in Uncertain Times The outlook for the yen remains uncertain. While the Japanese government may intervene to curb its rapid depreciation, the effectiveness of such strategies is limited without addressing the underlying economic factors. The future direction of the yen will likely hinge on global economic developments and the monetary policy decisions of major central banks.
by bryandowningqln
4
JPY has had 180 next few years written over it for a while nowI wasn't going to post about this one as I imagine it's being covered by everyone what with the captain obvious setup on a basic horizontal but since I've covered the Yen before I may as well I haven't re-visted this chart properly since I made some calls about that blue broadening wedge a few years back and the initial 152 resistance (see the related posts below) but one of these days in the not too distant future I will The cyan channel that I spotted out when I looked at it last looks like it's the upper half of a bigger channel Some very notable calls in recent years: SPREADEX:NIKKEI and DJ:DJI both to 40k (over 1y in advance) CRYPTOCAP:BTC pico bottom at 15k and recent local top at 70k FX:EURUSD pico bottom & TVC:DXY pico top at 115 TVC:USOIL pico bottom at 68 NASDAQ:SMCI mega breakout at 100 NASDAQ:NVDA mega support at 120 NASDAQ:TSLA pico bottom at 105 NASDAQ:NFLX pico bottom at 165
by markusrafferty
Macro Monday 41 ~ Japan Consumer Confidence Index Macro Monday 41 Japan Consumer Confidence Index (Released Tuesday 9th April 2024) Japan is the third largest economy in the world after the United States and China, contributing about 8% of global GDP, despite having only 1.8% of the world’s population. For such an impactful populace, lets see how the Japanese consumer confidence levels are looking at present. I promise you, it is very different to the western sentiment indicators. The Japan Consumer Confidence Index (CCI) survey is conducted monthly and covers 8,400 households in Japan, which includes 5,376 households of two or more persons and 3,024 one-person households. The survey has an unusually high response rate, with 90.6% of households responding in the latest survey. The index is made up of a sub set of Consumer Perception Indices: These sub-indices cover: 1. Overall livelihood: Views of current living standards 2. Income growth: Expectations for income increase 3. Employment: Outlook on job security & availability. 4. Willingness to buy durable goods: Likelihood of purchasing high-value items. The most incredible thing about the Japan CCI is that historically it has only risen above 50 indicating consumer optimism 3 times. Two of these occurrences were in the early 90’s and one was in the mid 00’s. All 3 were very brief with a reversion to pessimistic consumer sentiment in the months that followed. Since March 2006 the Japan CCI has remained below 50 indicating a prevailing pessimism amongst consumers in Japan. You might be wondering why are consumers in Japan are so pessimistic about their circumstances and economy. Historically, Japan has faced periods of economic stagnation, deflationary pressures, and slow wage growth, which are known to dampen consumer sentiment. Additionally, the aging population and concerns about the future of social security and pensions may also contribute to a underlying cautious outlook. Moreover, cultural factors might play a role; Japanese consumers are known for their saving habits and risk-averse nature, which can reflect in a more conservative CCI. It’s also important to note that the CCI is relative and can be influenced by the consumers’ expectations and experiences, which may differ from those in other countries. In essence, while the CCI below 50 might suggest a pessimistic view, it’s a complex interplay of economic conditions, age factors, cultural tendencies, and historical events that shape consumer confidence in Japan. The Chart As evident on the chart below and from the commentary above, the Japan CCI has only risen above 50 level into the optimistic sentiment zone three time in history, thus I have taken the historic average reading of 40.86 as a mid-level to create a line from which we can determine above and below average consumer confidence in Japan (based on the historical average). I understand that this approach isn’t a perfect as the average level will change over time as new data is released, however we can use the 40.86 level as a rough guide for above and below average historical sentiment (not as a measure of optimism vs pessimism). This level can help us identify when Japanese consumers are less or more pessimistic than their historical average level. Interestingly we are at the 39.1 critical level at present and the release tomorrow is an important release due to being at this important threshold level. We have been rejected from from the current level c.39.1 level twice in the recent past and if rise above 39.2, it will be the first time in 5 years that sentiment has risen above this level. 39.2 Level Significance ▫️ In Jan 2020 a fast rising and improving sentiment was rejected from the 39.1 level, and turned harshly lower to 21.6 in April 2020 (over 4 months). ▫️ Sentiment thereafter made a stark rise again only to be rejected a 2nd time from the 39.2 level in Nov 2021, with sentiment thereafter dropping to 28.6 in Nov 2022 (over 12 months). ▫️ Since Nov 2022 the Japan CCI has risen from 28.6 to 39.1 for Feb 2024. This will be the 3rd time since Jan 2020 that we have hit this level. We have been rejected twice from c.39.2 level over the past 4 years thus a break above this level would be a significant move in the right direction for sentiment in Japan. Whilst a reading above 39.2 is ultimately still pessimistic as it is below the 50 level, we would still be making new highs not seen since May 2019 when we fell lower than 39.2 for the first time (since rising above it in Jan 2015) If the Japan CCI can make a definitive move above this 39.2 level, I would see this as a positive indication of improving sentiment in Japan (in other words less pessimistic). If we thereafter made a move above the historical average of 40.86, I would view this as another significant positive confirmation of a less pessimistic consumer in Japan. Given the age, cultural and monetary differences between Japan and other countries, particularly those in the west, we can only look for thresholds of lessor pessimism using the Japan CCI as since March 2006 the Japan CCI has remained below 50 indicating a prevailing pessimism amongst consumers in Japan. The chart still informs of us of a lot and provides clear thresholds that we can pay attention to to gauge consumer sentiment in Japan. As always the beauty of the above chart and any others I share is that you can go onto my TradingView ideas page and press update, and the chart will update you with the most recent data release, informing you at a glance how the data looks on the chart with a nice visual guide with all the above thresholds easily visible. Hope it helps you stay visually informed at a glance with a click of a button. Thanks all PUKA
ECONOMICS:JPCCI
by PukaCharts
Where my 40k NKD target came from & why it could go higher laterI've been giving warnings ever since the c0v1d black swan, and especially since the 25k re-test, that Nikkei will grow wings but here's a seeing-is-believing look at where my 40k target comes from For sure it could go higher later and break this key resistance but I would expect at least one more re-test of the navy blue channel beforehand In theory there's no reason why a solid year can't be spent consolidating under that resistance a la 2006 Some very notable calls in recent years: SPREADEX:NIKKEI and TVC:DJI both to 40k (over 1y in advance) CRYPTOCAP:BTC pico bottom at 15k and recent local top at 70k FX:EURUSD pico bottom & TVC:DXY pico top at 115 TVC:USOIL pico bottom at 68 NASDAQ:SMCI mega breakout at 100 NASDAQ:NVDA mega support at 120 NASDAQ:TSLA pico bottom at 105 NASDAQ:NFLX pico bottom at 165
CME:NKD1!
by markusrafferty
$JPIRYY -CPI (YoY)ECONOMICS:JPIRYY Japan Inflation Rate Lowest in A Year The annual inflation rate in Japan fell to 3.0% in September 2023 from 3.2% in August, pointing to the lowest reading since September 2022. Meantime, core inflation rate dropped to a 13-month low of 2.8%, slightly above market consensus of 2.7% while staying outside the Bank of Japan's 2% target for the 18th month. Core inflation rate dropped to a 13-month low of 2.8%, slightly above consensus of 2.7% while staying outside the Bank of Japan's 2% target for the 18th month. On a monthly basis, consumer prices rose 0.3% in September, after a 0.2% gain in August. source: Ministry of Internal Affairs & Communications source: Ministry of Internal Affairs & Communications
ECONOMICS:JPIRYY
by Mr_J__fx
USD/JPY at Critical Juncture: Evaluating Peaks and Intervention The USD/JPY has surged to multi-year highs in the 151.000s amid a broader strengthening of the US Dollar and shifting trade dynamics, exerting downward pressure on the Japanese Yen. Currently positioned at 151.590, the pair finds itself within a robust resistance zone, hinting at a potential retracement following the Federal Reserve's upcoming policy meeting. As the USD/JPY approaches a critical intervention zone, historically monitored by the Bank of Japan (BoJ) for FX market stabilization, there arises a likelihood of resistance to further appreciation. This intervention zone, noted by analysts at MUFG, underscores the BoJ's proactive stance in curbing excessive Yen weakness beyond the 150.000 threshold. The proximity to this intervention zone implies a possible inflection point for the USD/JPY, suggesting a pending reversal or consolidation in the near term. Such dynamics highlight the intricate interplay between central bank interventions and market sentiment, shaping the trajectory of currency pairs like the USD/JPY.
Short
by FOREXN1
4
USDJPY H4 18 March 2024 USD/JPY, H4 18 March 2024 The Japanese yen experienced significant selling pressure as investors offloaded positions ahead of high volatility events. Despite the sell-off, bullish prospects remain for the Japanese yen, driven by speculation of potential monetary shifts from the Bank of Japan. Tuesday's BOJ meeting is poised to be consequential, with officials deliberating on ending eight years of negative interest rates in a landmark shift away from its stimulus program. USD/JPY is trading higher while currently testing the resistance level. Suggesting the pair might enter overbought territory. Resistance level: 148.35, 150.80📉 Support level: 149.15, 150.80📈
Long
by top_fx
BOJ to deliver 1st hike in 17 years tomorrow? There is possibly no bigger trading event this week than the Bank of Japan’s decision on Monday. The groundwork for abandoning negative interest rates has been subtly laid since last year, and now, this could very well be the month they choose to make their move. The prospect of ending a policy entrenched for nearly two decades could significantly move the USDJPY. The catalyzing force for the BoJ to end negative interest rates are the substantial wage hikes big corporations and their labor unions agreed on this year. On Friday, the Japanese Trade Union Confederation, the country's largest labor organization, disclosed that this year's annual wage negotiations produced remarkable outcomes. Major corporations witnessed an average hike of 5.28%, the largest wage increase in 33 years. Because of this, The Bank of Japan could be thinking that the current economic climate is OK for sustaining a stable 2% inflation rate in an environment without negative interest rates. Even in the eventuality of the negative rate policy ceasing, Governor Ueda has emphasized the continuity of accommodative monetary conditions. The BOJ will likely keep interest rates at zero percent. So, watch out for overreactions to this news too, and corrective moves in Yen pairs.
by BlackBull_Markets
2
Currency most likely to rebound against USD next week? Next week's Federal Reserve interest rate decision possibly just got a lot more interesting. Last night we got PPI data. In February, the producer price index, a key gauge of wholesale inflation, surged by 0.6%, surpassing expectations by more than double. The big question now is whether traders will reassess their expectations for the timing of a Fed rate cut. Currently, the market is pricing in less than a 15% chance of a rate cut in May and a 60% likelihood in June. This PPI report marks the final significant economic data released before the Federal Reserve's forthcoming policy meeting scheduled for March 19-20. The USD dollar knocked back all its pairs after the PPI announcement. But which pairs are likely to stage a comeback? The Japanese yen is possibly one of the best prospects in this regard. Traders will be looking for serious talk on Monday about the Bank of Japan ending it decades of extremely low-interest rates (or God-forbid an actual rate hike). The BoJ's Interest Rate Decision is slated for 11 pm on Monday. Next week, we will also see the release of inflation data from Canada and the UK, adding potential volatility to USDCAD and GBPUSD pairs.
by BlackBull_Markets
1
JASMYCOIN (POSSIBLE IDEA)Could this be the direction Jasmy is going? An idea I've come up with--. I can't explain much on the direction of jasmy. The break into the red circle and falling out only to repeat makes sense but once the graph passes the red circle there is no break, which makes sense. I used a previous incline wedge to measure a possible view for the future with a reverse coloring to account for what it would be like. The more Jasmy loses the closer red is of course so using that logic it's a guess on if Jasmy were to move forward and up then there is a small window based on this indicator guess.
COINBASE:JASMYUSDLong
by CryptocurrencyBlot
Japanese Equities Remain Compelling Despite Record Crushing RiseAnimal spirits are palpable in the Land of Rising Sun. Nikkei-225 smashed through it previous all-time-high set more than 40 years ago. Japanese equity markets have turned steaming hot over the past year after stagnation through lost decades. Strong foreign investment inflows, positive impact from the corporate governance reforms, portfolio rebalancing away from China, and low valuations, are collectively serving as robust tailwinds for the Japan equity market. Yet risks remain from an early BoJ policy pivot, high inflation eroding spending power, and limited domestic capital investment. This paper delves into factors driving record rally of Nikkei-225 index, its outlook, and posits a hypothetical trade to benefit from its continued ascent. WIDE RANGING REFORMS IN PLAY TO BOOST MARKETS. IS IT WORKING? In 2022, the Tokyo Stock Exchange (“TSE”) embarked on market restructuring plan with the creation of new market segments. Source: Tokyo Stock Exchange TSE rolled out a raft of corporate governance reforms in March 2023. It summarized key initiatives that investors aspire to see into fruition, namely (a) Weigh the cost of capital from investors perspective, (b), Report profitability and valuation metrics from multiple perspectives, and (c) Allocate resources to improve corporate value. Reforms aim to boost capital efficiency by utilizing excess cash reserves held by Japanese firms. Price-to-book ratio (“PBR”) is a key metric in TSE’s cross hairs. As of 31/Dec , more than half the firms that have submitted disclosures have a PBR of less than one. PBR less than one suggests that a firm’s dissolution value is greater than its market cap. Data Source: TSE Even among some of the largest firms in the country, PBR is less than 1. Data Source: TV Stock Screener A TSE Review shows that firms are allocating additional resources towards growth initiatives. It suggested share buybacks and dividends were effective means for improving profitability. Impact of the reforms are visible in many ways. Higher shareholder returns (through dividends and buybacks) are already manifest across many firms. Still, there is a long way to go. Disclosures and reforms are not widespread yet. As smaller firms join, capital investment could spread wider. Data Source: TV Stock Screener Also, while dividend growth is high, capex growth remains low. A focus on investor returns improves stock valuations in the near term. However, a larger push towards long-term capital investments will be required for long-term sustained growth. Capital spending by firms surged 16.4% YoY in Q4. Japan’s Prime Minister Fumio Kishida is pushing for its citizens to invest in domestic firms rather than save. He has re-launched the NISA tax-free investment programme. It provides extended tax-exemption periods and higher annual investment limits. The scheme, if successful, could channel large chunks of new capital into Japanese equities. Domestic participation remains low for now. Japanese investors prefer foreign stocks over domestic ones as per a Morningstar study . VIBRANT FOREIGN INFLOWS IN JAPANESE EQUITIES While domestic investors are yet to embrace its domestic markets, foreigners are leading the charge. US investors have poured USD 8.3B into Japan focused ETFs ( AMEX:EWJ , AMEX:BBJP , and AMEX:DXJ ) since 2023. JAPANESE EQUITIES REMAIN UNDERVALUED Japanese equities remain under-valued. Warren Buffet famously invested USD 6 billion during the pandemic in Japanese trading giants citing that he was offered a “ridiculous price”. Despite the recent market surge, P/E for stocks in the Nikkei-225 stands at mere 20.8x. Comparatively, stocks in the S&P 500 have an average P/E of 34.9x. Data Source: TV Stock Screener Nikkei-225 valuations are even more attractive when adjusted for growth. Average (excl. outliers) TTM PEG ratio for Nikkei-225 firms is 1.3x while for the S&P 500 its 2.5x. Data Source: TV Stock Screener Low profit growth remains a concern for Japanese firms. According to the Japan Ministry of Finance figures , ordinary profits rose by 13% YoY in Q4 2023, while high, that’s slower than 21% during Q3 2023. JAPAN IS ALSO AN AI BENEFICIARY Tokyo Electron, Renesas, and Advantest, constituents within the Nikkei-225 index have emerged as AI rush beneficiaries. Specifically, Tokyo Electron has surged more than 58% YTD. Softbank is another top performer thanks to its investment in $ARM. Heatmap of Nikkei-225 with key firms that comprise a large weightage in the index highlighted in blue. Nikkei-225 is a price-weighted index. Tokyo Electron commands the second largest weight in the index at 9.4% due to its high price. Advantest is third with 4.7%. Softbank ranks fourth with 4.45%. Therefore, a sustained AI fuelled market rally is likely to positively impacting the index. Not just the chip stocks, the Nikkei rally has been top-heavy due to outperformance of other large stocks too. Fast Retailing (the top weight in the index) is also supported by strong tailwinds and solid financial performance which has clocked a 26% rise YTD (versus 19% jump in the index). If outperformance among the large Japanese firms continue, the Nikkei will continue to race at a fast pace. NIKKEI IS STARTING TO FACE HEADWINDS Despite impressive performance and bright outlook, cause for concerns exist in the near term. Rising concerns that the BoJ may exit its loose monetary policy sooner than previously expected could snap the rally. Inflation has started to rebound. Wage growth estimates are solid. Revised figures for capital spending are expected to show that the economy avoided a technical recession in Q4. The benchmark index is starting to face resistance. An earlier than expected BoJ pivot could put brakes on this rally. Some market participants expect the BoJ policy pivot as soon as the 19/March policy meeting. Most expect the pivot to occur at the 26/April meeting. A consensus on the exact meeting has not been reached among BoJ officials according to Bloomberg . HYPOTHETICAL TRADE SETUP Nikkei is benefiting from strong tailwinds. It also faces the risk of a near-term correction, particularly from anticipated strengthening of the Yen. A hypothetical long position in the Yen denominated CME Nikkei-225 index futures with an entry upon near term correction is posited for a superior reward-to-risk ratio. The following hypothetical trade setup comprising of a long position in the Nikkei-225 Yen Denominated futures expiring in June (NIYM2024) benefits in case the Nikkei-225 rises. As the payout from the position is denominated in Yen, a strengthening of the Yen will serve as an additional boost to the dollar P&L. • Entry: 37,900 • Target: 41,690 • Stop Loss: 35,000 • Profit at Target: ¥1,895,000 ( (41690 – 37900) x 500 Yen/index point) • Loss at Stop: -¥1,450,000 ( (35000 – 37900) x 500 Yen/index point) • Reward-to-Risk Ratio: 1.3x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:NIY1!Long
by mintdotfinance
USDJPY H4 6 March 2024USD/JPY, H4 6 March 2024 The USD/JPY pair continues to trade within a consolidation range, fluctuating between the 150.80 and 149.75 levels. Notably, Mitsubishi UFJ Financial Group, Japan's largest bank, is reportedly adjusting its positions in anticipation of a potential move by the Bank of Japan (BoJ) in March. Senior management at the bank has suggested that there is a 50% chance the BoJ may shift its monetary policy, a move that could have significant implications for Japanese government bonds and the strength of the Japanese Yen. USD/JPY eases slightly but remains trading sideways within its consolidation range. Suggesting bearish momentum may be forming. Resistance level: 150.80, 151.70 Support level: 149.40, 147.60
Short
by top_fx
USDJPY Watch: Inflation Release to Shape yen’s Path? Japan's economy recently slid to the fourth-largest position, trailing Germany. This shift is primarily attributed to a weakened Japanese yen. In 2023, Japan's GDP stood at approximately $4.2 trillion, while Germany's was around $4.45 trillion. The weakness in the Japanese yen is pressuring BOJ Governor Kazuo Ueda to address this by tightening Japan's ultra-easy policy. However, this move is complicated by concerns about inflation, which BOJ policymakers still consider unsustainable, even as inflation negatively impacts domestic demand, contributing to a technical recession in the Japanese economy. The upcoming release of Japan's inflation rate, scheduled for the coming Monday, is anticipated to significantly influence the BOJ's decision regarding potential rate hikes in the coming months. Analysts predict a possible rate increase as early as April, especially if the country's annual spring wage negotiations confirm a trend of substantial wage increases. On the 4-hour chart, we are watching for the possibility of the USDJPY breaking above the weekly high of 150.430 and reversing the string of lower highs going back to the beginning of last week (which just so happens to be the yearly high for the pair).
by BlackBull_Markets
Firepower abounds for Japanese equitiesJapanese equities ended 2023 on a high note. Japan’s post pandemic re-opening, accommodative monetary stance, high equity risk premiums and improving corporate governance reforms were important tailwinds for Japanese equities in 2023. Over the last 12 months Japan has benefited from global investor inflows who are diversifying their investments in Asia, with geopolitical tensions and sluggish growth causing a rotation from China to Japan. There are several catalysts in place to fuel Japan’s equity market rally: Increasing capex & higher wage growth Revamping the Nippon Individual Savings Account (NISA) Corporate Japan’s ongoing reform initiatives Capex outlook bolstered by manufacturers The end of deflation is a catalyst unique to Japan. The Bank of Japan’s (BOJ) December Tankan survey indicates manufacturers will continue to boost capex in fiscal 2024 to prepare for the next growth cycle. Manufacturers plan to increase capex in fiscal 2024 by 14.6%2. Higher cash holdings for Japanese corporates and labour shortages are important incentives to invest in automation over the long run. Japan is at a demographic crossroads. The employment conditions diffusion index (DI) highlights Japan’s labour shortage to be the worst in 30 years3. To compensate, companies will need to invest in improving productivity. Demographics driving wage inflation At the same time, waning labour supply owing to an aging population is likely to bring back wage growth. The spring wage growth negotiations in 2023 drove wages up by 3.6%4 (the highest level in 30 years) and 2024 could see a further rise. Demand continues to increase in healthcare and social welfare owing to increasing domestic demand. Strong wage growth remains the key to the sustainability of inflation and inflation is likely to influence investors choice of asset allocations. As long as Japanese equities continue to benefit from inflation, we believe it would be natural for funds to increasingly flow into Japanese equities. Japan’s savings to investment drive Japan is transforming into an asset management led nation under the leadership of Prime Minister Kishida. In an effort to unlock nearly US$14Trn of household financial assets tied up in cash deposits, Japanese leaders are embarking upon reforms, like the introduction of 401(k)s in the US back in the 1970s. This is being done with the introduction of a revised Nippon Individual Savings Account “NISA” program offering tax benefits and portability. Starting in 2024 maximum investment amounts allowed under NISA have been increased and investors can enjoy the system’s tax benefits permanently. Japan’s wave of reform Corporate Japan’s ongoing reform initiatives, which include the Tokyo Stock Exchange’s (TSE) March 2023 announcement dubbed the “Price to Book (PBR) Guideline”, discussed here had a strong impact on companies. This was evident from the immediate rise in payout ratios following the announcements. By the end of January, the TSE plans to provide a list of companies that have either disclosed capital efficiency measures or have such measures under consideration. There is a strong likelihood that companies ‘under consideration’ could surprise on the upside with capital return announcements in the upcoming results season. Japan’s wave of reform Corporate Japan’s ongoing reform initiatives, which include the Tokyo Stock Exchange’s (TSE) March 2023 announcement dubbed the “Price to Book (PBR) Guideline”, discussed here had a strong impact on companies. This was evident from the immediate rise in payout ratios following the announcements. By the end of January, the TSE plans to provide a list of companies that have either disclosed capital efficiency measures or have such measures under consideration. There is a strong likelihood that companies ‘under consideration’ could surprise on the upside with capital return announcements in the upcoming results season. Japan continues to deliver strong earnings results Japan’s economy has continued to recover, and we expect the economy to withstand the modest slowdown in global growth. Japanese equities are testing 34-year highs in 2024, bolstered by 2Q FY3/24 earnings results. Net income for Japanese equities came in 6.2% ahead of consensus, with beats concentrated in domestic-oriented sectors including utilities & food/household products5. Corporate reforms had a significant impact on chemicals and auto parts sectors. Japan’s earnings revision breadth remains in positive territory in contrast to earnings trends in China and Europe. Positive earnings revisions alongside a structural trend to rising return on equity (ROE) is supporting Japan’s equity outperformance versus the rest of the world. Monetary policy likely to stay on hold until Q2 An important concern in 2024 remains the path of monetary policy by the BOJ, its impact on the yen and the repercussions for Japanese equities. Governor Ueda told Prime Minister Kishida that the Bank will monitor the strength of domestic demand, taking into consideration whether higher wages push services prices higher and the 2024 wage outlook. Recent inflation data continues to slow, as the prior high import costs work through the system amidst soft domestic demand. We expect the BOJ to exit negative interest rates in Q2, taking into consideration the spring wage negotiations. The yen may appreciate in H2 2024, on narrowing US-Japan interest rate spreads. A stronger yen could renew concerns over a possible negative effect on Japanese corporate earnings. However, a strong yen may not be too much of a hindrance to Japanese equities, with the market set on the theme of further vitality in the economy with rising wages and improving capex. Sources 1 Factset, WisdomTree as of 31 December 2023 2 Bank of Japan, 13 December 2023 3 Bloomberg as of 31 December 2023 4 Japanese Trade Union Confederation (Rengo) 5 IBES, Factset, MSCI Japan This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
PEPPERSTONE:JPN225
by aneekaguptaWTE
USD/JPY: JPY Struggles Amid Global TensionsUSD/JPY: JPY Struggles Amid Global Tensions The Japanese Yen (JPY) faces challenges in gaining momentum against the US Dollar (USD) as it retreats in the European session. European equity market optimism hampers the JPY's safe-haven appeal, while the USD sees positive traction ahead of the awaited FOMC meeting. Technical Analysis: The JPY faces resistance at 148.500 within the Fibonacci range of 61.8% to 78.6%, coupled with a potential bearish channel's dynamic trendline. Stochastic RSI divergence signals caution, and the price is poised for a potential bearish move. Market Dynamics: Global uncertainties, particularly in the Middle East, could limit JPY losses, supported by the Bank of Japan's recent hawkish stance. The looming uncertainty about the Fed's interest rate cuts may restrain aggressive USD bets, keeping the USD/JPY pair in check. Looking Ahead: Traders await key US economic data, including the Consumer Confidence Index and JOLTS Job Openings, for potential market direction amid the central bank event risk. The interplay of technical signals and geopolitical factors shapes the outlook for the JPY in the near term. Our Idea: Below 150.75 look for further downside with 145.00 & 142.00 as targets.
Short
by FOREXN1
1
Ride the Japanese Wave, Don't Grab That China Falling KnifeIt was nearly three years ago when the China stock market notched a short-term peak. Recall how the world's second-largest economy was initially seen as a growth engine coming out of the worst of the pandemic. An authoritative regime in China, led by President Xi Jinping, crippled the economy's expansion trajectory through harsh ongoing lockdowns and by clamping down on many industries, one after another. Then in early 2023, hope sprang eternal that China would re-open amid a burst of consumer spending, a la what was seen during the 'revenge travel' period in the United States back in 2021 and 2022. That did not come to fruition, and the Hang Seng Index is now down by more than 50% in the last three years. With all that turmoil going on in China, Japan's Nikkei 225 Index has continued to soar. Up more than 20% since February of 2021, the once sleepy Tokyo stock market features among the best momentum readings of all countries. Based on these trends, sticking with the 'long Nikkei, short China' trade should keep working, in my view. Another way to play it is by being long developed market stocks and avoiding emerging market funds (which still have a roughly 20% allocation to China). Finally, while China trades at a single-digit P/E ratio today, Japan is by no means expensive. Goldman Sachs notes that the country's current 12-month forward earnings multiple is just 14.9, about average compared to its 20-year history (Asia-Pac ex-Japan is 12.3x, for perspective). Interestingly, Japan is back up to 6% of the global stock market allocation while China has sunk to just 3%. Perhaps it is indeed the land of the rising sun while China is a classic "sub"-merging market. A solid ETF to play Japan continues to be the WisdomTree Japan Hedged Equity ETF (DXJ) which hedges exposure to the Japanese Yen. The ETF has a solid track record of outperforming other Japanese country funds.
TVC:HSILong
by mikezaccardi
1