Japan’s Nikkei Tumbles 2.93%; Will the 13,750 Support Hold?

Typically vacations should give people time and space to relax and or de-stress. The Japanese celebrated four days of holidays from May 3-May 6.

But instead of returning with a sanguine outlook, Japanese stock market participants went into an equity dumping mode.

The Nikkei 225 tumbled 2.93% today. The Topix got drubbed 2.58%

Here is what I wrote last Sunday:

For political economies that seeks to see price inflation like Japan, did Prime Minister Shinzo Abe order supply side constrains to boost inflation? The answer is no. What PM Abe did was to have the Bank of Japan’s governor Haruhiko Kuroda generate a 2 percent target inflation rate through quantitative easing by doubling the monetary base

The initial result has been to balloon a stock market bubble. Unfortunately given that one of the three arrows—the monetary policy arrow—has been halfway the target, Japan’s year on year M2 growth seem to have fizzled out. And the creature of the doubling of monetary base—the Japanese stock market bubble via the Nikkei (right)—seem to have corresponded nearly symmetrically with the year on year changes of the money supply. 

Now Japan’s Wall Street has been desperately hoping that BoJ’s Kuroda will introduce more quantitative easing if not an extension!

But with the recent imposition of sales taxes last April which most likely will have a negative impact on Japan’s economy over the long run combined with likely scenario that the BoJ withholds from expanding Abenomics…watch out! As a side note I think that the BoJ will eventually extend but again there is no free lunch and inflationism will hit a natural [economic or political] limit

The above excerpt seems like a coincidence relative to today’s outcome.

But as I pointed out, Japanese money supply has been in a deceleration. This indicates that the monetary force that has previously pushed the Nikkei up appears to have reversed, and so with previous stock market boom. Yet today’s selloff may be just one of the symptoms. 

Today's sell down paints dreary picture for the Nikkei. 

The green trend line reveals of the support level at around 13,750. The blue channel looks like a bearish descending triangle. A breakdown of the two support levels would signal trouble as they would signify a volte-face of the “animal spirits”

And this does not also augur positively for PM Abe and BoJ’s Kuroda’s monetary arrow of attaining an inflation target of 2%. The USD-yen has been in consolidation for the past 4 months as the Nikkei has weakening. In short, the yen has stopped declining.

Will the mini-boom reverse morph into a grand bust? Or will PM Abe and BoJ’s Kuroda save the day for Japan’s Wall Street with more easing?   

This is getting to be a lot interesting