The IMF has recently downgraded its assessment of the Japanese economy, indicating that Japan’s economic growth in 2016 is likely to be worse than what was originally expected. Bank of Japan comments reinforce this view. In order to help alleviate these problems, things like negative rate expansions have been considered, BoJ meetings indicate. Further quantitative easing is also being considered.
The economic picture for Japan is not very good right now, which would lead many traders to believe that going long with the yen is a good way to take advantage of this in the Forex and binary options markets. However, the evidence that we’ve seen so far isn’t very supportive of this path. The yen has seen its shares of struggles, especially against the US dollar, and a long term trend for the yen is still up in the air. It is leaning more toward neutral than it is bullish. Over the short term, the yen has seen some significant drops, actually, and even though the economy is weaker than expected, these drops keep happening. This is in stark contrast to what typically happens when an economy weakens. A weak economy tends to pump up the home currency as more dollars, euros, or whatever, are converted to that currency in order to buy domestic assets. We haven’t seen this trend occurring in Japan, which is indicative of deeply seeded systemic issues within the Japanese economy. For countries that are currently seeing strong currencies, such as the European Union and the United States, the yen will likely keep falling in price as even though the yen should be seeing growth in popularity right now, these two currencies are still far stronger. As you form short term trades, keep this in mind. It goes against common intuition, but the markets have many thousands of influencers on them, and what Japan is seeing right now is that their currency is dropping in value along with the overall economy. For those that prefer using put options and short sales, this is a perfect situation to be in.
The IMF is going as far as to say that the Japanese economy will shrink in 2017 if these trends continue. For those that are looking at Japanese indices to trade over the long term, the overall trend of these is likely to start sloping downward more dramatically than they have been. This will be exacerbated if the country institutes the sales tax hike that they had been originally planning on. Whether you are thinking of going short on Japanese ETFs, stocks, or if you will be using binary options to trade this fundamental information, it is important to time your trades well with good technical indicators in order to try and get the most money possible out of every trade that you make.
If you are taking out short positions based around Japan, it’s important that you do not look too far into the future. Despite the severity of the problems that the economy is having, these situations do not last forever. For Japan’s sake, hopefully this situation will be resolved in the very near future. It is likely to be several more months before any sort of stability is reached, but that doesn’t make this a definite timeframe. It could occur tomorrow, or it could be a few years from now. With any sort of trading strategy, just make sure that you are protecting yourself against undue risk, even if the situation appears to be highly profitable at the moment. There’s always a need to use caution and prudence in your trading methods and money management.