Japanese GDP threat to Topix index

A quiet start to the week in the Asian time zone with traders seeming content to sit on their hands ahead of Presidents Day holiday in the U.S. and Family Day holiday in Canada tonight. Content also to mostly look through GDP data in Japan that showed the Japanese economy shrank by an annualised 6.3% in the fourth quarter of 2019.

Due to the impact of a sales tax hike in October and a devastating typhoon, the expectation was for a contraction, however, todays fall was much steeper than expected. When taking into account the threat to activity data from coronavirus in the current quarter, mainly via tourism and exports, the Japanese economy is in danger or recording two consecutive quarters of negative growth. Thereby meeting the technical definition of a recession for the first time since 2015.

In days gone by, today's GDP would have provoked a sharp response across Japanese financial markets. Apart from modest falls in the Topix and Nikkei stock indices, USD/JPY and JGB’s remained becalmed comforted by an expectation todays GDP fall, increases the chance of more stimulus.

There is certainly a degree of truth in this. However, there is a genuine concern among market participants that another round of easing/stimulus from the Japanese government, will do more harm than good. The monthly chart of the Topix below goes some way to validating this concern.

The rally from the Global Financial Crisis low of 687 to the 2018, 1915.5 high unfolded in a textbook Elliott Wave five waves, after which the Topix commenced a correction. The most common type of correction is a three-wave zig-zagging correction. The current correction appears incomplete and missing a final leg lower.

Providing the Topix remains below the recent triple high 1750, the risks are for a move towards the wave equality target at 1225ish to complete Wave c of its correction. I would suggest using a break/close below support at 1620 to suggest the aforementioned big picture move is underway.

Source Tradingview. The figures stated areas of the 17th of February 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.