Nikkei Trades Lower On Core Machinery Orders

On Monday, the Nikkei traded lower after the Japanese government released the core machinery orders data. The core machinery orders report was highly negative, and that’s what led the Indice lower. On top of that, the corporate goods price index matched expectations for the month of February. Finally, the yen pushed lower allowing the Nikkei the freedom to stay afloat. The Nikkei opened lower by 0.5% in early trade, but started to gain ground mid-session.

Core Machinery Orders

The Japanese Cabinet Office released the core machinery orders data for the month of January.

The data showed that orders had fallen by 3.2% for that month. There are two problems with respect to this data. The first of which is that a drop in orders indicates that the economy is struggling. The second issue is that there was an expectation that the orders number would see an increase by 0.5%.

The core machinery orders data is important because it deals with the Japanese economy. It is a measure for capital spending, and that is something that can potentially drive growth for the economy. It must improve because Japan has been facing deflation. The Bank Of Japan — BOJ — has been trying to get the economy to a 2% inflation rate, but has failed to do so. If the economy is to improve, then the core machinery orders number must show an increase in February’s data.

Producer Price Index

The corporate goods price index — CGPI — showed an increase of 0.2% for the month of February. There is a key positive and negative aspect to this data. The positive thing about this data is that it matched analysts’ expectations. The negative aspect is that the CGPI came in below January’s 0.6% gain. A decrease in CGPI over the last two months shows that deflation is still very much at play in the economy. The pricing power in the economy remains weak, despite the Bank of Japan’s effort to stimulate it. The CGPI is important because it tracks the average price level for both consumer and capital goods bought by Japanese producers. It is another growth prospect for the economy.

Lower Yen

The yen started to weaken just before the release of both pieces of data. It even weakened as trade went on, because the data was quite disappointing. The USD/JPY pair traded to 114.88, marking a stronger dollar. The pair traded as high as 115.510 on Friday. That brought the pair trading to its highest level since January 19. The dollar was also stronger thanks to the upcoming Fed meeting this week.

There is a high expectation that the Fed will likely pull the trigger on raising interest rates in the United States. That will have a negative effect on the yen. The good news is that a lower yen will be a huge boost for the Nikkei. A lower yen does two things to stimulate the economy, and that’s why it is seen as a huge positive.

When the yen is lower, there is more spending done by consumers. That in turn provides a boost to economic growth. Secondly, a lower yen boosts the profits of exporters. Exported products cost less to ship, which in turn boosts corporate profits.

What Binary Options Traders Should Watch For

Traders should watch for a few things. The first item is to see if the core machinery orders number picks up pace in the following month. A good thing would be for the number to go from a negative read to a positive one. That will be a good indication on whether or not the Japanese economy is recovering. Thereafter, traders will need to monitor the CGPI.

This data must see a bounce back to its January level. If it drops next month, it will start a bearish trend, which will severely influence the ability to see an economic recovery. That in turn will be a huge negative for the Nikkei. Finally, the Nikkei may only head higher as long as the yen trades lower. Traders will need to monitor this to determine how the Nikkei will trade in the coming days.