The Cabinet Office of Japan released Machinery orders early in the trading day. It reported that Machinery orders for the month of December rebounded far greater than what was expected. Machinery orders grew by 6.7% for the month of December, which was the highest month to month gain in over six months. There are three reasons why this data is good. The first reason is that the month of December’s Machinery orders beat the prior month of November, which saw a negative growth of 5.1%. Secondly, the Machinery orders number was better than what analysts had expected.

Analysts were only expecting it to grow by only 3.1%. Finally, such a huge boost in Machinery orders is good for the growth of the Japanese economy. That is because the growth of the Machinery orders number tracks capital expenditure. That means that businesses are buying land, buildings, and equipment. These types of events are the ones that will help boost the Japanese economy, and that should translate to a higher Nikkei.

Stronger Yen

What put great resistance on the Nikkei was a stronger yen, which continues to make headway against the dollar. In the early part of the trade the USD/JPY pair traded at 111.96 marking a stronger yen currency. A stronger yen currency means that investors move away from investing in stocks and buy the currency instead. In addition, a stronger yen means less profits for major businesses that do a lot of exporting. It might not be ideal but the only way to combat against a stronger yen would be the Fed. If the Fed comes forth in March and raises U.S. interest rates, then the yen would be pressured lower. That would be very ideal for the Nikkei if that were to happen. That would allow the Nikkei to trade much higher. Of course, that all depends upon how well economic data rolls in.

The Fed will not increase interest rates, unless the U.S. economy is stable. In the meantime, the yen will continue to show strength since there isn’t much in its way for the time being. The only possible deterrent to the yen would be if the Bank Of Japan — BOJ — implements a deeper cut in negative interest rates. That is a tool that it has at its disposal if it deems necessary.

Oil Stockpiles Down

The Nikkei may have not fell as much thanks to positive oil data that came from the United States. The Energy Information Administration — EIA — reported that there was a build of 13.8 million barrels for the weekending February 3. A build in stockpiles is never a good thing. That is because oil trades based off supply and demand. Even though an oil build in stockpiles is seen as a huge negative, there was a bright side. The bright side was that the oil stockpile build was less than what was expected.

The American Petroleum Institute— API — reported a few days earlier that there was an expectation that stockpiles would be at 14.2 million barrels. Oil has typically had an affect on the market, and more than likely helped the Nikkei from trading much lower. The less than expected increase in oil stockpiles may have contributed to some short covering in the market, likely keeping the Nikkei stable.