AUD/USD, Nasdaq 100 reverse on Japan stimulus doubts

AUD/USD, Nasdaq 100 reverse on Japan stimulus doubts

• Japanese finance minister questions Abenomics, sparking Japan-led selloff
• AUD/USD and Nasdaq 100 extend losses
• Technicals favour bearish setups

Summary

Japan’s finance minister has cast doubt over the future of Abenomic policies, triggering a sharp reversal in the Nikkei and yen that spilled over into broader markets. AUD/USD led losses across G10 FX, while the Nasdaq 100 rolled over after rejection at resistance.

Abenomics Abandoned?

Japan’s Finance Minister Katsunobu Kato has cast doubt over the future of Abenomic economic policies, adding to political uncertainty and contributing to a sizeable reversal in the Nikkei and yen which spilled over into other markets, sparking a broad unwind across riskier asset classes on Tuesday.

Speaking at a regular press conference, Kato said Japan needs a new strategy that reflects the current challenge of inflation, rather than the deflation that shaped the Abenomics era. His remarks suggest a possible shift away from the stimulus-heavy approach introduced by former Prime Minister Shinzo Abe.

That stance appears to contradict newly appointed LDP leader Sanae Takaichi, a vocal supporter of Abe’s policies. Her appointment earlier this month helped boost Japanese equities and weaken the yen, as markets priced in a continuation of reflationary policies, including less likelihood of further rate hikes from the BoJ. Kato’s comments raise questions over how aligned fiscal and monetary policy will be under Takaichi’s leadership, especially as she struggles to form government.

Abenomics was launched in 2013 to revive Japan’s economy after years of stagnation. It centred on three policy “arrows”: aggressive monetary easing to fight deflation, flexible fiscal spending to support growth, and structural reforms to improve productivity. The strategy helped lift asset prices and break the deflation cycle but has left Japan with the largest debt load across western democracies with only limited progress on reform.

AUD/USD Revisits Friday Low

While the move started in Japan, it’s been the Australian dollar most impacted across the G10 FX universe, sliding as stock futures in Asia, Europe and North America turned sharply negative in line with the move on the Nikkei. The Aussie cannot escape the fact it remains a barometer of risk appetite, as demonstrated by the wild swings seen in recent days.

Source: TradingView

The latest reversal has AUD/USD testing minor support at 0.6465. A break there would bring the double bottom at 0.6419 into play, with 0.6374 the next downside level after that. On the topside, the pair was rejected at 0.6521 earlier in the session, coinciding with the low struck on September 26. That screens as a potential entry point for shorts, if we see a bounce. So does the intersection of the 50-day moving average, horizontal resistance at 0.6550 and 2021 downtrend around 30 pips higher.

Both RSI (14) and MACD are generating increasingly bearish signals but are not yet oversold, favouring selling into rallies and downside breaks near term.

U.S. Tech Slides

Source: TradingView

U.S. Tech 100 is another market to keep on the radar, reversing hard after being rejected at 24750 resistance. While the prevailing uptrend is hardly under threat, the move suggests we may revisit Friday’s low of 24,000 where the intersection of the 50-day moving average and horizontal support is found.

Those considering shorts could sell beneath 24,750 with a stop above for protection, targeting 24,000 initially. If it were to be broken convincingly, it would bring a possible retest of the May uptrend into play.

RSI (14) has shifted lower and now sits around neutral levels, while MACD has also rolled over, crossing the signal line from above while remaining in positive territory. The overall momentum picture is one of diminishing bullish strength, rather than building bearish strength. Price action should therefore take precedence over the retention of any specific directional bias.