The proof is in the pudding, well it is in the globalized failing of quantitative easing.
Abeconomics is no different. Japan Prime Minister Shinzo Abe will continue to feel pressure as his "three arrows" economic policy fails to push consistent economic expansion.
Japan's economy shrank 1.6 percent on an annualized basis with falling exports and contracting consumer spending to blame. The calls for additional stimulus can be heard loud and clear, but the Bank of Japan (BoJ) will further risk market fragmentation if additional easing is lumped into the already giant program.
According to the continuous contract of Japanese yen futures, Japan's currency has declined over 33 percent since 2011. This has not garnered the growth Wall Street expected it to outside of asset prices.
As the BoJ erodes the purchasing power of the yen, import prices are increasing and it is stifling consumer spending. Tax increases are almost a no-go for the same reason.
Since Abe was elected in 2012, Japan has only been able to grow by two percent. That's only a few tenths lower that the U.S. during it's quasi-monetary policy, now in its seventh year.
Near-term outlook for EUR/JPY:
The EUR/JPY has been rejected from resistance at 138.79 twice before its current retracement lower. Price action is hinging on support of 137.75, and a close below will signal further downside.
Dynamic resistance can be found at 137.55 and 13.30, or the 50 and 72-EMA respectively. Price action support won't be seen until 136.93, which corresponds to the near-term uptrend line. A challenge of 136 is probable.
If traders look to take the pair higher, a break of 138.79 could cause a momentum push higher after challenging the descending trend line. This could push the pair up to 139.90.
In the longer-term:
However, the BoJ could begin to talk the yen lower whether due to poor economic data or the fact that China's decision to devalue the yuan has implications throughout the region. A weaker yuan could force the Japanese central bank to weaken the yen further to try and gain an additional competitive advantage.
The People's Bank of China (PBoC) will look to shake the yuan's tether to the US dollar, and future devaluations are in the cards. The BoJ could go tit-for-currency-war-tat.