The Tokyo Stock Exchange continues to fall down after the release of weak economic figures. Despite endless government helps to support the country, the third largest economy continues to deteriorate and the specter of a deep recession looms again over investors.
After two quarters of growth, the GDP decreased by 0.9% during the third quarter. On an annualized basis, the contraction is very strong (3.5%) which is its biggest drop since the one that followed the tsunami of March 2011.
The deterioration is mainly due to weak exports to Europe also in recession and to China where Japanese investors and retailers suffer from territorial dispute between the two countries over islands in South China Sea. The deterioration of relations with China affects the Japanese economy, both in trade and in the tourism sector.
In addition, in the domestic market, Japanese household spending fell 0.5% compared to the second quarter. Consumers were more careful as they lost lack of confidence in the future and feared of lower income.
Technically, the dynamics weakens again in an uncertain economic environment. A weekly close below the 8450 level would open the way to a quick return on the 8200 support. We will take short position under 8450 points to target 8200 points and 8000 points by extension. We can trade the break of the 8450 level using the Nikkei 225 1212 Future (code: NKDXXXX on the CME market).