Is it a sign of strength or complacency that global markets have shrugged off the 4% overnight move lower in Japan? The second largest stock market in the world had its worst day in 2 months, and European stocks are flat while U.S. stock futures are only down 0.25%.
Perhaps more interesting is that there was no obvious catalyst for the move lower (besides the yen strengthening, which is a bit of circular reasoning anyways). The BoJ, Japan’s central bank, begins its 2-day policy meeting today, so it could have been positioning ahead of that event. But a 4% move is a huge move for such a major market. Granted, volatility in Japanese equities has been elevated ever since April and May’s parabolic rise and swoon. Here’s the Nikkei:
It’s still above its 50, 100, and 200 day moving averages despite the move lower, so the long-term uptrend remains in tact. But the price action in the Japanese yen signals a bit more concern. As I’ve written before, the yen has been the risk barometer of the world for the past 9 months. The USD/JPY rate hits its lowest level since mid-June:
The 50 day ma is now clearly downward sloping. It’s also worth noting that the USD/JPY cross topped before stocks did in May, and it bottomed before stocks did in June.
While summer doldrums, with its low volume and low volatility, seems entrenched for now, Japanese markets are flashing preliminary warning signs about global risk appetite. We’ll find out soon enough whether Japan is indeed the leader of the global market chain gang, or simply a solo convict in an otherwise quiet August.