Japanese Industrial Production Disappoints

Alan Penny

20 January 2020

3 min read

JPY trading

  • Japanese Industrial Production numbers fall
  • Japanese monetary policy continues to look soft
  • Bank of Japan will likely continue with loose monetary policy

To kick off the week, the Japanese released Industrial Production figures month-over-month in the revised form. Being the final number, it carries a bit more weight than some of the other industrial announcements.

the Japanese export market is crucial, as it is one of the world’s largest economies

Traders should keep in mind that, when looking at industrial production in Japan, it can be seen as a bit of a proxy for how global trade is going, albeit not as straightforward as it once was. After all, now we have the Chinese producing much more than the Japanese do.

Nonetheless, the Japanese export market is crucial, as it is one of the world’s largest economies. After all, it’s important to look at the global market through the lens of German, Chinese, and Japanese exports at the very least. It gives us a good idea of how global trade is functioning, and we need to look at the overall patterns. In this scenario, Japan is one of the major markets to monitor.

A disappointing announcement

The announcement came out at a disappointing -1.0%, as opposed to the -0.9% that was expected. This isn’t a major miss when it comes to the number, but it does show that global trade coming out of Japan at least is still struggling. That’s something to pay attention to when it comes to monetary flow.

Recently, the Japanese yen lost some luster, and while that is typically a reflection of risk appetite increasing, the reality is that market participants are all over the place these days. As such, it does represent some measure of increased risk appetite, and perhaps it also indicates a slight reflection of the fact that the export market is slow.

Furthermore, the Bank of Japan looks very likely to continue its loose monetary policy, perhaps even extending it. That too works against the value of the Japanese yen.

The yen will possibly decline further

Going forward, it seems the Japanese yen will continue to lose value, especially when you look at the USD/JPY pair. It is above the ¥110 level, which was a major breach of resistance, and now it looks as if it is ready to continue trying to go to the upside. This is a simple reflection of how money is running from Japan, at least in the short term.

Japanese equities will more than likely continue to suffer as well, as the outlook for exporters will probably take more pain in this type of environment. That will be reflected in the price of equities.

The Nikkei 225 will continue to suffer a little. But as a general rule, it will probably experience a push and pull, owing to the struggle between the idea of equities suffering at the hands of lesser exports.

At the same time, it will probably experience a boost due to the fact that monetary policy in Tokyo keeps being extraordinarily loose. At this point, though, Japan will persist in its lackluster performance.

Written By
Alan Penny

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