JAPAN was hit by the earthquake and tsunami disasters on March 11 and landed in devastation.
Since then, businesses have been suffering from the impact of weak demands and shortages of power.
The aftermath slides and Nikkei equities and rising yen against the greenback have caused second consecutive declines in quarterly growth ended March.
By the end of April, the government approved a new stimuli of US$49 billion to be injected as funds to rebuild the country from disastrous damages that was earlier estimated to be more than US$300 billion.
Not much persistent effect was seen in Japan’s financial markets while investors’ confidence remained shattered.
Recent economic data showed continual weakness following the unclear policy makings by the government on further actions to recover the nation’s woes.
The unemployment rate rose to 4.7 per cent in April from 4.6 per cent in March, having left out the disaster-hit prefectures namely Iwate, Miyagi and Fukushima.
This figure suggests how much higher the actual data will read if genuine compilation was reinforced.
The labour department also reported average wages in Japan shrank for the second straight month in April and was down 1.4 per cent as compared to the year before.
Industrial production reflected a meager gain of one per cent in April after it plunged by a record 15.5 per cent in prior month in the wake of the disasters. Meanwhile, Japan had a monthly trade deficit for the first time in 31 years as exports slumped in April.
Trade deficit was reported at 463.7 billion yen (estimated US$5.7 billion) and overseas shipments snapped 12.5 per cent in from a year earlier.
While Japan’s government is saddling on hard time to introduce more measures in economic recovery, the citizens have oppressed to the unpopular rise for sales tax hike when proposed by the cabinet.
Simultaneously, the ratings agency Standard & Poor’s downgraded Tokyo Electric Power Company (Tepco) to junk status because of uncertain bailout measures by the government.
The existing Prime Minister Naoto Kan is facing beleaguered pressures from internal political fights while challenged by external ruptures of the defunct economy.
As the third largest economy in the world, Japan is experiencing the worst gain in GDP ratio among all developed countries.
Being a country that has swapped six prime ministers in the last five years, another ratings agency Moody’s Investors Service expressed opinion of undermining possible downgrades in Japan’s local and foreign currency bond ratings due to economic devastation though the regular political struggles may be overlooked.
Moody’s said the possible downgrade might be triggered from the humongous cost from recent disasters, weak deficit reduction policy and the vulnerability of a long-term fiscal consolidation strategy.
In the capital market, US dollar to Japan yen ratio has been entrapped in 80.00 to 84.00 levels for almost sic months without a clear trend of reversing upward.
After the 311 disaster, Nikkei 225 index was jointly supported by G7 nations and jumped up from the hammered bottoms 8,200 regions to 10,000 benchmarks.
However, the market is hanging at 9,400 to 10,000 sideways while struggling to stay abode.
In our technical outlook, Nikkei 225 is highly prone to slide soon when there are no more funds buying into the market from Bank of Japan (BOJ), let alone the foreign aid.
While Japan’s biggest trade counterpart, the US is fighting at plight of surviving its own recession while the threats of expirations in QE policy in mid June will leave many analyst wonder the chain effects of Down Jones markets relative to Japan’s equities.
Smart investors will begin to reduce their equity portfolio while migrating to futures trading with large opportunity in shorting the market if the plunge begins.
Besides speculating, this is perhaps the most efficient way to hedge against your downside risk if properly understood and utilised.
Dar Wong is the principal consultant of APSRI and has trained many professional traders in Asia. The expressions expressed are solely his own. He can be reached at www.pwforex.com.