This is all you need to know about Abenomic and the Nikkei 225.
We are on the frontline between reflation and deflation. The market wants to cross into the territory of growth and expansion, but it has structural resistance trying to hold Japan to its long term strategy of retrenchment.
Tomorrow which is Friday 20th, Nikkei looks to pull back from this trend line, as it did months before after the historic rally of early 2013. Technical analysts call this resistance but it is not just a technical line, it is a political one.
The political fight is between inflationists wishing to expand and deflationists wishing to contract gracefully.
If the market breaks through this downward channel it will indicate a new growth era for Japan. One of expansion, one where the young are financed to prosper, by the transfer of wealth wrought by inflation on the savings of the old. Deflation does the opposite,; it supports the old on the backs of the young.
This down trend line is the battle line and the battle is now at fever pitch.
If Abenomics prevails and the market decisively breaks this falling trend line, the market will break to 20,000 and above. If it doesn’t it will flounder below this line until Abe is removed and the market resumes its decent.
Japan’s demographics are terrible with the population on target to halve to 60m this century. Some people think that will be good. A collapsing population funds those that remain by concentrating assets. The environmental benefits are obvious. However is that the fate of Japan, to politely vanish?
Abe wants growth, wants inflation, wants positive developments. This is at odds with long term policy of retreat and retrenchment. In a world of a rampant China that policy is obsolete, but long terms policies are hard to reverse.
So the battle rages on.