Position squaring and squeezing ahead of the US fiscal stimulus plan still in process.
Japanese industrial production came in at - 9.6% month on month in December, exceeding the market consensus at -8.9%. Since market developments has not improved since, the latest market estimates are now for Japanese industrial production to drop by 20% q/q Q1 2009!
This should reduce the Japanese GDP by 4% q/q, 16% y/y.
As mentioned earlier on the 27th of Jan,(http://todaysmacrotrading.blogspot.com/2009/01/china-is-it-derailing-will-it-devalue.html), Japanese exports collapsed in December and will inevitably drag the Japanese GDP lower.
Japanese industrial production came in at -9.6% M/M in December, exceeding the market consensus at -8.9%. since market developments has not improved since, the latest market estimates are now for Japanese industrial production to drop by 20% q/q Q1 2009!
This should reduce the Japanese GDP by 4% q/q, 16% y/y.
Quantitative easing next for Japanese authorities
Given the Japanese state of the economy and with interestrates already down at 0.1%, Quantitative easing an new innovative versions of it will be the way forward. This will probably include system stabilisation measures.
With financial protectionism (see http://todaysmacrotrading.blogspot.com/2009/01/bailouts-and-tradewars-closer-than-you.html), clearly on the rise and more to follow on the back of it, the stakes are rising. It is likely that Japanese authorities during current circumstances is beginning to feel more and more uncomfortable belonging to the very exclusive but not very helpful "strong currency club".
With the Japanese fiscal year bringing an avalanche of repatriation flows on the back of mainly Euroarea related currency hedge flows,(seehttp://todaysmacrotrading.blogspot.com/2009/01/i-am-short-eurjpy-eurusd-here-is-why.html as well as http://todaysmacrotrading.blogspot.com/2009/01/eurozone-and-cee-dilemma-implications.html), and the market positioned for it, there should be a quite high probability that Japanese authorities wants to adress this dilemma. This could mean intervening in the currency markets.
Although I doubt they will succeed, it would fit very well into the squeeze theme, as the initial reaction would probably be quite large. I have positioned myself for a short term "Jpy squeeze", mainly in Usd/Jpy.
As always, good luck
Meanwhile, bearish macrodevelopments continue unabated. However, the squaring and squeezing will have to run its course before it is time to get bearish again. I would not expect to have to wait that long though.
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