Fiscal stimulus coming soon to an economy near you - JPY
Tony Sycamore December 6, 2019 9:30 AM
A common thread in our notes this week has been a discussion of fiscal stimulus and its imminent arrival. Timely, as another fiscal stimulus domino fell after the Japanese Prime Minister Shinzo Abe announced yesterday an economic stimulus package worth about 13 trillion yen ($119bn). Japan has been experimenting with ultra-low low-interest rates for decades. Despite experiencing mixed success, it appeared committed to this course of action until GDP data released last month showed that in the third quarter the annualised growth rate of the Japanese economy slumped to 0.2% from a rate of 1.8% in the second quarter.
A common thread in our notes this week has been a discussion of fiscal stimulus and its imminent arrival. Timely, as another fiscal stimulus domino fell after the Japanese Prime Minister Shinzo Abe announced yesterday an economic stimulus package worth about 13 trillion yen ($119bn).
Japan has been experimenting with ultra-low low-interest rates for decades. Despite experiencing mixed success, it appeared committed to this course of action until GDP data released last month showed that in the third quarter the annualised growth rate of the Japanese economy slumped to 0.2% from a rate of 1.8% in the second quarter.
The cause of the slump, a tax hike in October, a sharp fall in Japanese exports due to the U.S. – China trade war and a devastating typhoon. Adding to downside risks a drop in activity is expected after the completion of stadiums and other venues ahead of the 2020 Tokyo Olympics.
Faced with the possibility that the Japanese economy might slip back into recession and with the lost decade of economic stagnation still recent enough to bring back painful memories, the Japanese government has turned to fiscal policy.
The fiscal package was met with only mild enthusiasm as the details confirmed leaks from earlier in the week. Nevertheless, fiscal stimulus is in theory supportive of the currency of that country and therefore should be viewed as JPY supportive. This aligns with the current technical setup in USDJPY outlined below.
The rally from the 104.45 low is viewed as a correction that suggests a move lower in USDJPY will occur in due course, including a test of the 104.45 low. The bearish reversal candle that formed earlier this week from ahead of the trendline resistance at 110.00, goes some way to suggesting the move lower has already commenced. However, more downside confirmation is required, including a break of trendline support and recent lows 108.20 area. Until this occurs, a rally back to 109.30/50 is possible.
As such, my preference is to sell rallies in USDJPY back towards 109.30/50 ideally pending the formation of a bearish reversal type candle, with a stop loss placed above 110.25.
Source Tradingview. The figures stated areas of the 6th of December 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.