Equity markets in Asia are lower on the day breaking two consecutive days of gains as the main circulating news story is the credit downgrade in Spain which is garnering more of the market’s focus than the improved earnings from Samsung and the latest decision from the Bank of Japan (BoJ) to inject monetary stimulus (additional purchases of government assets).  Given these factors, we can see that market attention is still firmly centered on Europe and traders are willing to ignore or at least minimize positive stories seen in other areas.

Part of the reason for this can be seen in companies like Nippon Sheet Glass Company, which makes 39 percent of its sales to European customers.  The company’s stock was lower by almost 2 percent during the Tokyo session.  Nintendo was also lower by 6.1 percent after the Wii console maker revised lower its profit forecasts and Mitsubishi Financial (the biggest commercial lender in Japan) dropped by 0.3 percent, reversing gains previously inspired by the BoJ policy announcement.  The big gainer on the day was Samsung Electronics, which 2.8 percent on its strong earnings release.

Going forward, market volatility will be determined by the degree to which weaker macro economic data will be seen affecting global earnings in corporates.  Rallies in equity markets have been strong so far this year so there continues to be a downside risks as recent data releases remain questionable.  The MSCI Asia Pacific Index is lower by 0.2 percent to trade just above 124 as three stocks within the index were higher for every two stocks that declined during the session.  Early in the session, the Index was actually seeing gains of roughly 0.5 percent (after the BoJ statement) but traders pared back long positions into the close, creating a down trading day.

Specifically, the BoJ announcement showed that policy makers are looking to increase the asset purchase fund in Japan to 40 trillion JPY, which is an increase of 10 trillion JPY from the previous meeting.  The central bank’s main goals are to stimulate economic growth and keep the JPY from gaining additional strength, as this currency appreciation is seen weighing on the country’s main export companies.  The total impact on the Nikkei 225 was limited, as declines of 0.6 percent were seen on the day (after seeing gains of 1.4 percent earlier in the session).  Japanese industrial production figures were also released, coming in weaker and giving many analysts evidence to make the argument the current BoJ policy programs are insufficient for restarting the nation’s troubled economy.

Technical Analysis:

The EUR/JPY is failing just ahead of some critical resistance levels, as the 61.8% retracement of the latest decline aligns with historical resistance and the 100 week EMA.  Bias remains firmly to the downside as long as this area remains intact, with prices focused on a test of the support seen at 97.50.

The Nikkei 225 is trading with a downside bias but prices continue to be caught in a short term range with support defined by the 9420 level (also the 100 day EMA) while resistance is seen at 9705.  Long term momentum is downward, which suggests the direction of the break we will see but a break of resistance would also be encouraging in the short term.