Yen and Abenomics: the end of the Japanese empire?

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The expansionary monetary policy continues for the Bank of Japan, with its Abenomics that continues to grow because there seems to be no alternative. In fact, the market expects, sooner or later, a new increase.

How does the QE made in Japan continue? According to the objectives of the Tokyo government, the huge expansion of the public deficit and the budget of the Bank of Japan, together with the flood of liquidity in a domestic market abandoned by the demographic crisis and the comatose state of the banking system, would stimulate demand domestic and would make Japanese products more competitive due to the depreciation of the yen, pushing exports and allowing the country to participate in international growth. In fact, the results obtained so far are nothing short of disappointing: the attempt to reactivate domestic demand has not produced significant benefits in the dynamics of the gross domestic product, which last year had registered definitively negative and progressively worse with respect to the euro area. Perhaps Abe had not taken into account the impact of its Policies on the purchasing power of Japanese citizens, who have paid the depreciation of their currency with a drastic reduction in the purchasing power of their salaries. It is possible that the undeclared goal of Abe as, in fact, of all competitive devaluations, It would be to compress the income of the workers in order to swell the boxes of the exporters, demanding that the citizens make a hidden donation in favor of the large national companies.

Too bad that this sacrifice has not translated into any improvement in the external balance: on the contrary, despite the fall in the value of the yen in the markets, the Japanese trade balance continued to deteriorate in 2013 before stabilizing in negative territory in 2014.


However, the expected benefits of the QE have been shown illusory while very real are their charges, materialized mainly in higher interest on public debt, which in 2015 have reached a level to absorb as much as 43% of tax revenues. If we take into account the explosive dynamics of the debt and the demographic drop (a decrease of 35% of the population is expected in the next 40 years), it is evident that this system of diversification of the income of the workers in benefit of the holders of public debt tells us that Japanese taxation will soon become unsustainable.

In any case, Abe's policy seems detrimental to everyone, although it has brought many benefits to securities operators and big banks, it is enough to see how the usd / yen pair has evolved since 2012 until today. Moral: economic laws exclude that only with deficit spending and competitive devaluation can real and lasting economic growth be generated.


But the interesting thing is that the Bank of Japan will even increase this monetary stimulus. In fact, according to a Bloomberg survey will be in June or, later, in the month of October.


Japan has achieved not so much with good but with bad curb the decline in consumption. But at what price? Of course: the debt of the debt. We can say that if the Bank of Japan, as of today, was going to interrupt its Abenomics, it would be a shock to the Japanese economy. However, it is a perfect example of a country that is a slave to its monetary policy.

Technical analysis USD / YEN

The usd / yen is the reference currency to understand the operation of the stock exchange. The market is dollar-centric, and a strong fall of the dollar gives us a bearish signal. Since 2012, beginning of the Japanese QE, we have witnessed a vertical fall of the yen currency, coinciding with the upward trend of the market of the last three years. Now the usd / yen is almost on the verge of touching the maximum prior to the crisis of 2008. The trend, unless we lose strongly 115.57 area, thus denying the long-term uptrend, should arrive in area 124.14. Once this resistance is broken, the change will go to the attack of the maximum of 2001 (134) and then those of 1998 (145). Conversely, the loss of area 115.57 would lead to the change in area 110 and, possibly, area 101.


Analysis weekly. Last week we saw confirmation of the weakness of the greenback through the dollar-yen that broke a very important triangle. If the weakening of the dollar continues, we expect a downward change to area 117 and this is the level to watch over the coming days: the closer we get to that level the stronger the correction of the stock market will be. Until we see the dollar-yen at almost 117, I suggest an attitude of caution because most traders will probably continue to take profit in the stock market.


LEVELS: USD / JPY broke this week's hourly support at 119.35 (minimum 04/22/2015), indicating persistent selling pressure. Monitor the hourly support around 119.17 (minimum 04/21/2015). We have another support at 118.64. Hourly resistances totaled 119.80 – 120.12 and the descending trend line passes 120.44. We maintain a bullish long-term trend until it holds the key support at 115.57 (16/12/2014 low). A gradual rise to the fundamental resistance to 124.14 (maximum 06/22/2007) is expected. A key support is at 118.18 (minimum 02/16/2015) and another at 117.22, while a key resistance is at 121.83.

OPERATING: long at a solid break of 120.82 with target 121.84 and then 124. Short if 115.57 is lost with target 110.96 and then 101.35.



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