Japan's Shrinking Economy & Strong Yen

If Japan's economy has hit bottom, it's pretty far down. The world's second-largest economy marked its worst-ever quarter of GDP, with a contraction of 4%, government figures revealed. That's far worse than the U.S., where the economy shrunk 1.6% last quarter, or Europe, which saw a 2.5% hit.

Japan has suffered from a strong yen, which has crippled its exporters, who are finding it difficult to drum up demand overseas for their goods. Companies' capital spending dropped 10.4% as they declined to invest in new factories or equipment. Deflation has hit as wages drop, unemployment proliferates, and households ruthlessly cut their budgets. In addition, the Japanese consumer has retreated even further into frugality, with consumer spending dropping 1.1%.

The biggest problem is in private spending, always an issue in Japan, where it's considered inappropriate to spend lavishly. Now that the traditional lifetime guarantee of a steady, well-paid corporate job no longer exists, consumers are afraid to spend money on themselves. "I believe that a worsening of conditions in the corporate sector is starting to have an impact on households," said the prime minister, Taro Aso, speaking to parliament after the GDP figures were released.

Aso's government is spending $160 billion to stimulate the economy. Measures include cash payments to residents and tax incentives to buy eco-friendly cars, among other programs. In response to the stimulus checks that are arriving in the mail, many businesses are running "stimulus specials" for 12,000 yen ($120), the amount of the checks per adult. (Children received $200 from the government.)

But many Japanese consumers will likely save the money instead. All but the youngest workers remember the country's "Lost Decade" in the 90s, and few want to live through the privations of a long recession without money in the bank.

Reuters contributed to this article.

http://www.tradingfx.com/
http://www.youtube.com/user/TradingFXcom

PRIMARY TFX CROSSOVER FOREX TRADE

FOR MORE INFO & FREE GUEST PASS: Info@TradingFX.com

The Primary TFX Crossover Trade Presentation

Using The Revolutionary TFX Pip Range Bar Charts

Euro/US Dollar Volatility

The coming week promises no shortage of Euro/US Dollar volatility, and economic sentiment could take a further turn for the worse on key PMI data. Much has been made of the fact that Euro Zone Purchasing Managers Index reports have shown clear signs of economic recovery. Yet the “hard data” in Industrial Production and other timely data releases have not shown commensurate improvement. It will subsequently be important to watch whether the recent pickup in investor sentiment is warranted and sustainable. Consensus forecasts call for a noteworthy jump in the German ZEW business survey’s “Economic Sentiment” index—implying that business conditions are steadily improving. Of course, that data could just as easily reflect the effects of a fairly substantial rally in global equity markets. A worse-than-expected result would likely deflate domestic indices and force a commensurate drop in the EUR/USD.

Later Purchasing Managers Index data likewise remains important, and disappointments in said releases could also herald a turn in financial market sentiment. Recent Euro Zone Industrial Production figures showed record year-over-year drops in domestic activity. Such data stands in stark contrast to improving trends in PMI indices, and one of these pieces of data must shift. Unless we see sustained improvement in PMI figures and commensurate gains in Industrial Production, recent signs of economic recovery will amount to little.

Outlook for US Dollar

Following up on a period of fundamental abundance with dramatic market events (the Fed Stress Test) and high-level economic indicators (non-farm payrolls), the dollar was put through its staid phase this past week. A round of indicators that included the April retail sales and May University of Michigan consumer confidence survey have put the focus back on the supposed ‘green shoots’ that so many policy officials and market commentators have noted recently. This will be the primary concern for dollar traders next week: is the United States leading the gradual economic recovery? However, this broad and speculative fundamental driver will only be able to guide price action if it is not interrupted by a more immediate concern – like a sharp rise or plunge in risk appetite.

Working with the anticipation that there will be no unforeseen event that sweeps over the market and stirs sentiment, we will have a series of indicators and meetings that could guide the measured race for establishing the leader of the global economic recovery. As it stands, most of the major, industrial powerhouses are mired in recession; and the immediate outlook is far from promising. However, the currency market is a relative one and speculators are willing to look well into the future to discount the macro trends. So far, the US has shown signs that the pace of deterioration in employment, factory activity, consumer spending, confidence and the housing market are slowing. It should be noted that these trends are not positive, just less aggressive in their decline. We will see whether the Fed sees the same signs of hope with the minutes from the Federal Open Market Committee’s (FOMC) last policy meeting over April 28-29th. In previously released statements, the group has maintained its forecast for a contraction through the rest of the year and a slow recovery through the first half of 2010. If perhaps the central bankers are more encouraged by recent data, and they project perhaps a recovery sometime before the turn of the year, it would be a big vote for the US outpacing Japan, the UK and perhaps even the Euro Zone.

TradingFX

TradingFX provides a solid opportunity and a new way to access the currency markets. The revolutionary TFX Pip Range Bar Charts & Virtual Trading Floor give traders the power to trade the highly-lucrative Forex market anytime of the day or night. Our state-of-the-art charting program is based on pure price movement and not the standard time-frame based charting formula. PRBC allow for a precise charting strategy by removing the noise and enabling more accurate indications for entering and exiting trades.

TradingFX was designed and developed to meet the needs of traders in a unique and inventive way, plus we have created dynamic and exciting opportunities for entrepreneurs. Clients have access to our 24/5 Virtual Trading Floor to share strategies, ideas and information with other active participants while trading in a supportive environment. Traders also have unlimited access to advanced training classes and tailored one-on-one coaching sessions. Additionally, members have the ability to generate another stream of income through our Client Referral Program.

http://www.tradingfx.com/
http://www.youtube.com/user/TradingFXcom