As we all know, the Bank of Japan is printing money at an alarming rate. The Japanese Yen has plunged against every major currency including the US Dollar since late 2012, which is when the Japanese joined Ben Bernanke and the Federal Reserve and began diluting its currency. It should be noted that the Nikkei 225 topped out in December 2013 and has struggled to get back to that level despite more and more money printing. Action like that in the Nikkei 225 is problematic for a country drowning in debt.
Toyota Motor Corp. (NYSE:TM) is arguably the best Japanese company in the country. It's a global brand with recent record sales. We all know that a weaker currency boosts exports and that has certainly helped Toyota's bottom line. But the stock price is now making lower highs on the charts. Lower highs on a price chart are not a sign of strength for a stock. Toyota topped out in July 2013 at $134.94 a share. Midday Thursday, the stock was trading around $116.50 a share.
It's a problematic sign for the Japanese economy when the country's best company is struggling to catch a bid.
Ticking Bomb
Japan is the world's third largest economy behind the United States and China. If the world's third largest economy fails to inflate and recover, it will affect the rest of the global economy in a major way. Indeed, japan could be a ticking time bomb for the global economy. After all, the current Japanese Yen carry trade has been fueling stock markets in the United States and Europe. Basically, large financial institutions short the yen then buy S&P 500 futures contracts with the proceeds. If that carry trade ends, what's left to prop up the markets? And that's the trillion-dollar question every trader and investor should be asking.
So for now, everyone best keep their eyes on the Japanese Yen and Toyota Motors. In my humble opinion, when the Japanese stock market crashes, the party is over.
Until then, my friends, party on.
