Judging Japan

Japan’s most closely watched stock-index, the Nikkei 225 Stock Average, closed above 18,000 this week for the first time since July 2007. Meanwhile, a busy few days for economic data out of Japan has been mixed at best.

Q414 GDP under-whelmed, coming in at 0.6% for the quarter and 2.2% annualised, against the 0.9% and 3.7% forecast. It was an improvement on Q314 and dragged Japan out of a two-quarter “recession” but looking under the bonnet one can observe a continued fall in private consumption and business spending, both engines of economic growth. Adding to the mix were disappointing retail sales in January, as measured by department store sales, whilst exports were one bright spot, jumping to 17% year-on-year versus the 13% expected and a decent improvement on December’s 12.8%.

So what is the jury to make of it?

Our “Ailing-Nomics” commentary of early September 2014, discussed Prime Minister Shinzo Abe’s grand plan, primarily the debasing of the 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 Nikkei, reminding 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.

In Japan’s case, it’s been very important to watch the international value of the Yen, as this is not only closely tied to the fortunes of the Nikkei and further on for GDP, but also for other asset classes such as the price of gold, which we set out within November’s “Gold Watch.”

Ironically, whilst the evidence of a weaker Yen is positive for the stock-market, this doesn’t appear to be the case for the economy, as can be seen here:

18 Feb 15 Blog 1

The Yen has been inverted to better show the correlation and as can be observed, a “Stronger Yen = Stronger GDP” and vice-versa.

Judgement day may be fast approaching on whether this evidence holds up in respect of the chart observations above and those made within the earlier analysis, including the chart “resistance line,” set out for the Nikkei within the jolt commentary, which has arrived.

The outlook for Japan’s Nikkei, the Yen and for the Japanese economy are at an important juncture. The key driver, as always, will be the direction of the Nikkei, so it’s important to read this correctly.

18 Feb 15 Blog 2

Our recent “Oil Price Collapse…Why the Surprise,” two-penneth highlighted the benefits of our investmentimer service, which is ideal for all kinds of market participants, be they private or professional investors, marketing or broker sales related or by advisors and planners. The free-trial offer is still available which includes any signals changes for Nikkei, which as you can see has provided good guidance to date.

By simply entering your contact detail here you will receive the next three months “Off the Peg Servicefree of charge, including the most recent signal.

It should assist you in making your own judgement.


One response to this post.

  1. […] its close correlation (albeit by showing it upside down) against its domestic stock-market, see “Judging Japan” of a year ago, Wall St and even Gold, last brought to our readers’ attention in November […]


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