Japanese Jolt

The financial newswires have been buzzing all week, after the “shock” news that the land of the rising sun has turned somewhat cloudier, tipping back into recession once more and panicking Japan’s Prime Minister, Shinzo Abe, into calling a snap-election whilst delaying the planned sales-tax hike.

Whilst for the many it may have been a shock, our early September 2014 piece, entitled “Ailing-Nomics,” observed that “consumption, the engine of Japan’s GDP, is unlikely to increase any time soon, due to the fall in real wage’s and the ¥1,000,000,000,000,000 of public debt, which needs to be serviced as the printing press is ratcheted-up yet another gear, not to mention the plans for a further hike in the sales tax.”

 Patently consumption hasn’t increased, nor has economic growth.

 A few more observations may be in order, starting with the correlation between Japan’s most closely watched stock-index, the Nikkei Dow 225, the bell-whether of Japan’s collective social mood, and retail sales, in this case being nationwide department and large supermarket store sales, as its history goes back further.

19 Nov 14 Blog 1

As can be seen, the collective social mood turned higher in 2009, a full 3-years before Abe was elected and, as stocks moved higher, so did consumption. Of late, the Nikkei’s momentum has waned, as have sales.

Also mentioned within the early September blog, was the fact that a country’s main stock-index is also a leading indicator of the economy, not vice-versa as so many are taught and believe. This can be observed within the second chart, albeit that the Bloomberg GDP data only goes back to 1994, whereas the Nikkei data is shown to include it’s quarterly peak level of 38,957 from way back in December 1989.

Kindly note that the Nikkei is still 56% below that peak of 25 years ago, despite a rafter of stimulus measures, including roads to nowhere, airports with no planes, not to mention QE, which today’s batch of Central Bankers state is new and untested.

19 Nov 14 Blog 2

Will Abe be re-elected? Who knows? … When will taxes increase? Who knows?

 What we do know, however, is what’s in the charts and that the charts are saying the Nikkei needs a very close watch, as do the charts of the Yen and the Gold price, as set out in the recent “Gold Watch comment.”

19 Nov 14 Blog 3

A final look at the Nikkei includes a horizontal resistance dashed-line, which we would prefer to see penetrated before getting too excited about any further upside for both stocks and the economy. Of perhaps more concern is a proprietary indicator that we use, which historically has been of great use.

It is currently suggesting a larger jolt to come.



2 responses to this post.

  1. […] the Nikkei and the weakening Yen and between Japan’s GDP and Money-supply, whilst November’s “Japanese Jolt” observed the slowing economy and retail sales, introducing our own proprietary indicator as […]


  2. […] Yen, showing the correlation between the Nation’s money-supply and GDP. A further overview, “Japanese Jolt” was published in November, which also showed a close correlation between retail sales and the […]


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