The situation in the global economy continues to affect Japan. Macroeconomic indicators, being published in this country, are mostly mixed. There are some positive factors as well as negative hints, which are important to look at.
Industrial production in June was released at -3.6%. Manufacturing PMI for July remained at the level below 50. Last time the Manufacturing PMI was fluctuating below the significant level of 50 was in 2016. That time monetary authorities made a preventive step and decreased the interest rate at the beginning of the year to -0,1%. Considering PMI, it helped, because the index remained above 50 for a long time. Services PMI was published by Markit Economics at 51.8.
Household spending has not yet been fixed in a negative zone during this year. The Statistics Bureau published the last real consumption opexpenditures at +2.7%.
Picture 1. Japanese consumption expenditures
Negative signals are coming from the Japanese Cabinet office. According to its survey consumer confidence index is constantly falling down. Number of people who want to buy durable goods is decreasing (according to the Cabinet office willingness to buy durable goods went down by 2.2 points for June).
Picture 2. Japanese consumer confidence index
The national core CPI is growing modestly. The latest result for June was released at +0.6% - worse than in the middle of the second quarter.
To stimulate the national economy the BoJ is pumping a lot of liquidity in the markets though QE programs. According to the last BoJ minutes: ‘most members viewed it appropriate to keep easing persistently’.
The situation for the Japanese economy may always get worse because of the trade war. This week the Chinese national currency devalued against other currencies. During the first week of August the Japanese yen strengthened against Chinese yuan by almost 15 – these are local 2016 minimums and China buys almost 20% of Japanese exports. In the situation of low interest rates, internal market tightening and the weakening of Chinese currency it’s logical to expect that the national economy will soon move into recession.
The Japanese GDP is released on Thursday the 8th at 11:50 p.m. GMT. Economists forecast that the preliminary result for the second quarter will be 0.1%. We expect that GDP could be slightly better, taking into consideration the situation with retail sales and trade balance. But we think that global situation may start getting worse.
USD/JPY is in a local bearish trend. It seems that the US dollar is testing the support level (105.000 – 105.300). Consequently, we may expect that USD will bounce back, but longs are possible only after the pair breaks its short EMA up at 107.000. In this case, the first target price will become 107.600.
Picture 3. USD/JPY 1D TF.