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    Tankan surprised again

    The Bank of Japan’s Tankan business confidence report is published quarterly. Last week there was another release – the results of the second quarter. The main Tankan index, which reflects large manufacturers’ business confidence surprised again…

    Three months ago, before the release of the previous Tankan data, analysts’ expectations regarding the dynamics of this indicator turned out to be overstated: they expected growth to 14 pips, while the indicator remained at 12 pips for the second time in a row. After that experts have become more cautious – they anticipated that in the second quarter the index will register 12 again (according to the consensus-estimate of twenty Wall Street Journal economists). Again, wrong. The indicator rose to a yearly high – the level of 15 pips – and finally, managed to break out of the 12-13 range, where it had been trapped for a year (see the Chart). Apparently, the Japanese manufacturing sector begins to experience positive effects of the national currency’s devaluation.

    japan-business-confidence6-7-15

    As for the major non-manufacturing companies, the Wall Street Journal experts’ expectations proved to be correct: the index continued steady growth, consolidating at the level of 23 versus 19 in the first quarter of 2015 and 17 in the fourth quarter of 2014. It looks like consumer spending in Japan is gradually gaining momentum.

    Another positive aspect of the report was the upward revision of large businesses’ investment plans. Three months ago, large companies planned to reduce the volume of investments in 2015 fiscal year by 1.2% compared to the previous financial year (in Japan’s a fiscal year starts on the 1st of March). Now the plans have changed and companies decided to increase their investments by 9.3%. However, we shouldn’t overestimate the significance of such sharp correction in plans: usually at the beginning of a fiscal year the Japanese make very conservative, even pessimistic plans and then change them depending on how the situation unravels.

    The news of increased confidence in the Japanese corporate sector generates interest in buying shares of Japan’s companies, and judging by the rise of Nikkei after the Tankan release, investors share the same view. However, we should keep in mind that new Tankan report may be used by the BoJ as an excuse not to rush with further expansion of current quantitative easing program. And this is a negative factor both for Tokyo stock market and for the USD/JPY pair, which usually moves in the same direction as Nikkei 225 index.

    So the impetus to growth, which the dollar/yen pair gained on the news, in my opinion, has been now exhausted. The US news reports, and turmoil around Greece are now producing a greater impact on the pair’s dynamics.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    The Bank of Japan’s Tankan business confidence report is published quarterly. Last week there was another release – the results of the second quarter. The main Tankan index, which reflects large manufacturers’ business confidence surprised again…

    Three months ago, before the release of the previous Tankan data, analysts’ expectations regarding the dynamics of this indicator turned out to be overstated: they expected growth to 14 pips, while the indicator remained at 12 pips for the second time in a row. After that experts have become more cautious – they anticipated that in the second quarter the index will register 12 again (according to the consensus-estimate of twenty Wall Street Journal economists). Again, wrong. The indicator rose to a yearly high – the level of 15 pips – and finally, managed to break out of the 12-13 range, where it had been trapped for a year (see the Chart). Apparently, the Japanese manufacturing sector begins to experience positive effects of the national currency’s devaluation.

    japan-business-confidence6-7-15

    As for the major non-manufacturing companies, the Wall Street Journal experts’ expectations proved to be correct: the index continued steady growth, consolidating at the level of 23 versus 19 in the first quarter of 2015 and 17 in the fourth quarter of 2014. It looks like consumer spending in Japan is gradually gaining momentum.

    Another positive aspect of the report was the upward revision of large businesses’ investment plans. Three months ago, large companies planned to reduce the volume of investments in 2015 fiscal year by 1.2% compared to the previous financial year (in Japan’s a fiscal year starts on the 1st of March). Now the plans have changed and companies decided to increase their investments by 9.3%. However, we shouldn’t overestimate the significance of such sharp correction in plans: usually at the beginning of a fiscal year the Japanese make very conservative, even pessimistic plans and then change them depending on how the situation unravels.

    The news of increased confidence in the Japanese corporate sector generates interest in buying shares of Japan’s companies, and judging by the rise of Nikkei after the Tankan release, investors share the same view. However, we should keep in mind that new Tankan report may be used by the BoJ as an excuse not to rush with further expansion of current quantitative easing program. And this is a negative factor both for Tokyo stock market and for the USD/JPY pair, which usually moves in the same direction as Nikkei 225 index.

    So the impetus to growth, which the dollar/yen pair gained on the news, in my opinion, has been now exhausted. The US news reports, and turmoil around Greece are now producing a greater impact on the pair’s dynamics.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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