Given the issues underlined by our friends at UKIP regarding British jobs, it seems ironic that Japan’s economy is suffering due to the country’s tight immigration policies. This is the opposite to ours, where anyone who can survive queuing for an hour at border control is deemed fit for the British way of life. And quite rightly so!
The problem in Japan is apparently compounded by the way that much of the ageing population is also somewhat reticent to do any work which is difficult, dangerous or dirty. This is the so called “3K”, if you believe a recent article in the Japan Times. Therefore, logic implies this large chunk of the population in the Land of the Rising Sun would only be suitable for working as the equivalent of a BBC executive, or in a similar cushy position.
All this makes the gargantuan task assumed by Prime Minister and erstwhile economic superhero Shinzo Abe all the more challenging in terms of ending the post 1990 bubble burst. His goal, as mapped out at the end of 2012 when he came to power, was to pump so much cash into the Japanese economy that it would bring sustained and significant inflation (and growth) back into the system. Apparently, we have now turned full circle from the 1970s and 1980s and now there is no worse disease than deflation.
The problem is that nearly a year on from the start of Abenomics it is unclear whether the policy has reached a comma or a full stop. Not helping is the closed society in Japan. But neither is the sales hike tax which kicked in at the start of April. To suggest the timing of this move was unfortunate would be a severe understatement. This is especially the case given the way that a 25% sell off in the Yen had clearly helped get things on the right track over the past year and a half – witness the recovery in the Nikkei. The issue now is whether the positive momentum of Abenomics has been lost or not?
From a technical perspective Dollar / Yen, almost exactly on its 200 day moving average, closely matches the fundamental crossroads we are currently at. A chartist at this juncture can at least tell you that close to or just above the 200 day line a stock or market is half full rather than half empty. If you are a trend follower and have not given up on Abenomics this is the dip to buy into. It is worth pursuing at least while there is no sustained sub 100 Yen dive. One would assume that Dollar / Yen bulls would fight to keep this level alive, especially as the reward is potentially as high as an October price channel top towards 108 over the next 2-3 months.
With Euro / Dollar we have another central bank, and equal desire to weaken a currency. In this case it is ECB President Mario Draghi trying to cool a cross against the U.S. Dollar, which at $1.37 is arguably at least 20% too strong for the ailing PIIGS nations. I note that in Spain we are finally seeing the first signs of Euroscepticism ahead of the European Elections. This is “un poco tarde” by around a decade and about 3 million lost jobs. It also leads one to believe that Nigel Farage is operating in the wrong country, Spain would be far more appropriate.
The good news here is that there has been a cooling off from the highest levels of the year near $1.40, as the threat of QE by the ECB next month kicks in. However, considering this threat it is amazing that there is no greater decline for the cross towards the 200 day moving average, at $1.3630 currently. At least in theory, while the 200 day line remains unbroken, just as in the case of Dollar / Yen, we are obliged to take the view that the uptrend is still alive. We are also obliged to take the view that the ECB will not be successful in weakening the Euro as much as more than half of its constituents sorely need.
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