Japan In Recession

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Japan, once the world’s third largest economy, has unexpectedly slipped into a technical recession. The recent contraction in its has significant implications for both the Japanese yen and the equity market.

The Bank of Japan (BOJ) faces a delicate balancing act. There has been interest rate divergence between US and Japan currency pair. USDJPY has been declined to 150. It has eroded the purchasing power of Japanese people. Japan’s economy is depended on the export. It had impacted the export competitiveness of Japan. BOJ need to increase the interest rate to improve the sluggish growth and stabilize the yen.

Technically USDJPY seems overbought. The next resistance level is at 151.31. It’s upside will be in place till it stays above 147. If USJPY breaks below 147 it might try to go towards 144 area. Till that time traders need to be cautious and give a thought before taking any new position.

Recession has repercussion on equity market. Japan equity market is at all time high. It has been driven by domestic demand. But the question arises how long it can continue with dampened consumer confidence. Japan’s GDP has contracted for the second consecutive quarter. Investor are now waiting for BOJ’s policy decision to control inflation.

In summary it is a situation of dilemma for policy-maker as well as traders/investors.

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