Japan Up 7 Percent From Lows

It was front page news on the way down, but it appears that the Nikkei’s seven percent move off its lows is barely worth a mention. Sure, it’s barely impressive given the index’s painful move off of its highs, but it’s significant.

In fact, the index already broke out of its descending trend line and it's less than 300 points away from a breakout of the key 13,514 level.

On Wednesday, the Nikkei added 1.83 percent to close at 13,245. Volume has steadily fallen since the beginning of the month suggesting that traders should interpret moves with caution but on a more positive note, that panic selling is largely over.

What’s causing the move? Some of it is technical. Once something is severely overbought (like it was at the highs) or severely oversold (like it was at the lows), there will be a move or series of moves to bring the oscillators back to equilibrium—or closer to it. There’s no doubt that some of the recent move is related to the technical.

But there’s more to it than the technicals. For example, Japan reported Wednesday that the country’s exports were up 10.1 percent year over year versus consensus of 6.5 percent. Imports climbed 10 percent—missing expectations of 10.8 percent.

Then there’s a new Reuters poll showing that traders believe Japan’s economy will grow faster than expected one month ago. This is, in part, related to news that its economy grew at a rate of 4.1 percent in the first three months of the year.

That means that Prime Minister Shinzo Abe’s economic stimulus plans are working better than most believed since the markets began their fall.

But the data isn’t all positive. Projections call for core CPI, a measure of inflation to rise only 0.3 percent this fiscal year which started in April and 0.8 percent next fiscal year. This would be disappointing given the magnitude of Abe’s stimulus measures.

As for the rest of the week, until the market digests Wednesday’s FOMC meeting and the subsequent Bernanke press conference, all markets are in wait-and-see mode. Traders remember that it was Fed Chairman Ben Bernanke that started much of the volatility by “kind-of” suggesting that the Fed may begin to taper its bond buying program. Markets are looking for clearer direction from the Fed but the consensus seems to be, “don’t get your hopes up.”