When something refuses to go down on bad news

Posted Monday, August 15, 2016 by
Skerdian Meta • 2 min read

The Japanese economy has been in stagnation for quite a long time now. I mean, we have seen periods when it has been in recession and during other time periods we have seen some growth, but all in all, if you see the long term average the Japanese economy has been pretty much in stagnation. That means no growth for those who don´t know what stagnation is. Although the inflation has been very low for decades, it has been higher than the economic growth, which is not a good thing for the new generation, since the inflation eats into the personal income if the wages don´t grow accordingly. 

The y/y GDP stands at just 0.2%

Yesterday evening I was staying awake to see the Japanese GDP numbers for the Q2 (second quarter). The prior number was 0.5% and the expectations were for a 0.2% expansion of the economy. But, the economic data showed it remained flat. All the other related data such as the consumer spending and year-on-year GDP missed the expectations too. The business spending and net exports declined by 0.4% and 0.3% respectively. 

How do you expect an economy to grow when there´s no spending by businesses and the consumer spending is very low? Anyway, I was expecting to at least see a 80-100 pip decline in the JPY, which means 80-100 pip appreciation in USD/JPY. Well, this forex pair only spiked around 20 pips for a few minutes then it reversed and is now about 50 pips lower. What does that tell you? It tells you that the forex market sentiment is extremely bullish towards the JPY. If USD/JPY can´t go up on negative Japanese data then there is only one other way, and it points down. The 101 level has already gone so this might be the day we see the 100 support level finally let go. 

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