Nikkei 225 – GDP pushing Nikkei above 12,200

Japan’s economy posted a growth in Q4 2012, bringing it out of the “technical recession” after suffering 2 consecutive shrinkage back in Q2 and Q3. While Shinzo Abe’s followers will be quick to credit it to “bold monetary measures” implemented by the Prime Minister, it is important to note that Abe was barely in office when Q4 ended. Furthermore, is the GDP really that fantastic? Nominal GDP actually shrank 0.3% Q/Q, gross stayed flat, lower than expectations of a 0.1% gain. Annualized GDP came in at 0.2%, hardly awe inspiring and meeting expectations. GDP Deflator, the gauge of inflationary pressure came in at -0.7% vs an expectations of -0.6%, bringing Japan’s position further away from the 2% inflation target. The only marginally bullish news is the better than expected Trade balance, which came in at -¥1479.3B vs a deficit of ¥1512.3B, though the “better” trade deficit is almost 1 trillion Yen wider compared to previous quarter of a ¥567.6B gap.

All in all, the series of data that came out today doesn’t point that Japan is recovering; at best it suggest that the economy has been the same as before. Obviously “Abenomics” is not working, but neither should we be expecting in it to work in Q4 2012. The earliest we could see results would be Q1 2013, and that is a rather optimistic estimate as monetary polices effects take months to be felt. Just ask RBA’s Stevens, he has been saying that 2012 cuts are still working their way into the economy.

Therefore, it is certainly surprising to see Nikkei 225 trading higher after the news. Then again, if we can accept that sentiments are bullish (due to anticipation of Abenomics), perhaps it is not so alarming that traders are clutching at any bullish straws they can find that helps in their bullish agenda. Again, this is not a sign of irrationality of market, but just a common observation that we see during a strong uptrend.

Hourly Chart

Hourly Chart show price pushing higher from the previous swing high on 7th March. We’ve now traded into fresh new highs in 2013 though rising Channel Top could still provide resistance against strong breakouts. Stochastic readings is bottoming with a Stoch/Signal cross and price could still climb into the Overbought region once again, limiting upside.

Daily Chart

Daily Chart is looking very similar to Hourly Chart, however price is more bullish with a breakout of the Channel, suggesting that we could see acceleration of bullish momentum. However, Stochastic readings is putting doubts on the rate of bullish growth considering that readings are nearing the mathematically limit of 100.0. Furthermore, the current rally from 28th Feb lows is one of the fastest within 2 weeks even within the current uptrend, suggesting that we’re already in afterburner mode, making a case of bullish acceleration less likely.

USD/JPY Hourly Chart

A stronger economy strengthens the underlying currency, as such, we should be expecting USD/JPY to head lower, and not higher. However it seems that USD/JPY is also pushing new 2013 highs after the “good” GDP data. A convoluted argument could be made to reconcile this: Perhaps the market is not pleased with the GDP readings, and hence speculate on more “bold monetary policies” from Abenomics in the near future. If this is true, we are potentially looking at a repeat of 2012 pre QE3, where traders were actively looking out for bad data e.g. NFP prints to buy into stocks and risk currencies. The announcement of QE3 sent stocks eventually LOWER on a “buy the rumor, sell the news” move. The next “big announcement” from Japan is expected to come in BOJ’s April meeting. Traders should be careful of what they wish for, as a materialization of “bold monetary policies” may not result in an outcome that they want.

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