Recent data shows Japan’s economy is not hitting the growth or inflation targets set out by Prime Minster Abe. 4th quarter GDP missed expectations along with the most recent retails sales as premature tax hikes hit the consumer.
The poor data releases are a blow to Abenomics:
- · Monetary easing to reverse deflation
- · Fiscal stimulus to boost spending
- · Structural reform to revive long term growth
The 3 pronged objectives of Abenomics are to instil confidence in the Japanese economy so consumers will spend more, whilst businesses invest to expand and hire.
Despite the poor data mentioned above, the Bank of Japan did not adjust monetary policy at their last meeting. This has triggered a reversal of short Yen positions (IMM Data) - net short positions hit the lowest level since 2012. This trend is likely to continue in Q1 as the BOJ sit on the side lines.
However, in Q2 the disappointing data will become a real threat to the Abenomics movement, and on the balance of probabilities the BOJ will react to increase their asset purchases (currently sits at 80bn Yen per year). When this happens we will likely see the Yen come under pressure again.
- USD/JPY has the potential to offer us long opportunities as the pair gets driven by growth and monetary policy divergence.
- IMM positioning datat shows short JPY positions are beinng unwound, making for a less crowded trade.
- Put long USD/JPY on your watch list for your FX portfolio
- Technical analysis must be a carried out before entering this position.