Austerity measures the Vogue in Europe + Japan 10 Year Yield Analysis

Today's main event in the UK, is the new government's first budget, and one that they hope will re-assure markets with regard to the credibility of the UK's finances. However, I think its significance may be that it will be further confirmation of the reversal of the expansionary Fiscal policies of Western governments of recent years, particularly in the wake of the financial crisis and recession of 2007/8. European Governments have started already, in the case of the PIIGS they have been or are being forced into tough austerity measures, whilst the core Euro governments argued strongly at the recent G20 that deficit reduction is now priority Number 1, and Germany just recently announced a budget aimed at drastically reducing its own deficits. Across to the Far-East and just over a week ago the new Japanese prime-minister Kan Naoto spoke of a new 'Third-way' in Japanese economic policy, whereby deficit reduction measures will become a key leg of government policy. Elsewhere, in emerging markets economies, fear of inflation may be leading to stronger anti-inflationary measures, some commentators cite this as one of the reasons for the weekend's Chinese move of allowing its currency to strengthen against the US dollar. - The US continues to stand by its more expansionary fiscal policy of recent years, however the drive for tighter fiscal policies from Europe and Japan, alongside continued deleveraging efforts by consumers, increases the risk that deflationary forces may continue to exert pressure on asset valuations.

I will post one chart today, it follows yesterday's analysis on the US 10 year yield, whereby I stated that I believe the balance of risks favour lower yields, although as usual things are not that straight forward and we remain close to key pivotal levels which could lead to a reversal in yields. Today I am posting a chart showing weekly 10 year Japan government yields over the past decade (See below). Like the US 10 year yield, this sits very close to a major pivotal line, and today it has moved to within a whisker of this level (The close last night was 1.195%, the lowest close since 1.17% in Jan 2009). Also like the US yield chart, significant price patterns are exerting downward pressure on yields, price action over the past couple of years has led to the formation of a Bearish 'Descending Triangle', additionally price action since 2003 has evolved possibly as a multi-year Head & Shoulders type formation. - Since 2003, the support zone of 1.17-1.20 (my line in the sand), has held as support on numerous occasions, and is likely to be a difficult hurdle to overcome, furthermore rating agencies are watching Japan closely which may provide further support. - However, should this line suffer a clear and sustained breach, I believe that it would suggest stronger deflationary pressures ahead for Japan, though this time, it might not be Japan alone facing the threat of deflation.One final set of charts, unrelated to the above. It is the SP index in 3 charts. Top Chart is 1980s through to present day on a Log Scale. Middle chart is SP Index Mar 2009 daily. Lower chart is 5 minutes for past couple of weeks. Are there similar patterns forming across the 3 different time scales?? ,,,or perhaps I am just curve-fitting (Always a danger)? If the S&P bounces to around 1120ish, then falls through support around 1105/06, it may suggest something in this, though the likelihood is strong that I have curve-fitted...........