1 Jul 2015
Japan: Tankan provides some good news for PM Abe, Watch out for JPY – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, reviews the BoJ’s quarterly Tankan report, and notes that the release bodes well for business confidence, and further shares the outlook for USD/JPY into the ongoing Greece crisis.
Key Quotes
“The BOJ’s quarterly Tankan report was released today and revealed a turn higher in business confidence with the large manufacturers’ diffusion index jumping from 12 in April to 15, the highest level since April 2014. The gains in sentiment were more notable for large enterprises. The sentiment index for medium-sized manufacturers actually fell 2ppts to 2 and fell 1ppt to zero for small-sized manufactures. The capex plan was another positive jumping from the -1.2% estimate in April to +9.3% in today’s report. There does always tend to be that jump with caution over capex plans quite normal in April at the start of the new fiscal year. Still, the 9.3% level was the highest since before the financial crisis.”
“This data doesn’t have much implication for the yen to be honest. The expected USD/JPY level in the survey was 115.62 for the current fiscal year, so further yen strength from here wouldn’t seem to be too surprising for Japanese companies.”
“We do see the yen as at risk of further strength from a positioning perspective if the crisis in Greece were to escalate further. Part of the reason for low volatility is that positioning has been greatly reduced in foreign exchange. However, for the yen that’s not the case. IMM data shows an upturn in short yen positions since mid-May while more timely retail margin positioning data shows a very sharp an upturn in yen short positions since the day after the June FOMC meeting. So yen out-performance on an escalation of ‘Grexit’ risk as these positions are unwound is a scenario to watch out for.”
Key Quotes
“The BOJ’s quarterly Tankan report was released today and revealed a turn higher in business confidence with the large manufacturers’ diffusion index jumping from 12 in April to 15, the highest level since April 2014. The gains in sentiment were more notable for large enterprises. The sentiment index for medium-sized manufacturers actually fell 2ppts to 2 and fell 1ppt to zero for small-sized manufactures. The capex plan was another positive jumping from the -1.2% estimate in April to +9.3% in today’s report. There does always tend to be that jump with caution over capex plans quite normal in April at the start of the new fiscal year. Still, the 9.3% level was the highest since before the financial crisis.”
“This data doesn’t have much implication for the yen to be honest. The expected USD/JPY level in the survey was 115.62 for the current fiscal year, so further yen strength from here wouldn’t seem to be too surprising for Japanese companies.”
“We do see the yen as at risk of further strength from a positioning perspective if the crisis in Greece were to escalate further. Part of the reason for low volatility is that positioning has been greatly reduced in foreign exchange. However, for the yen that’s not the case. IMM data shows an upturn in short yen positions since mid-May while more timely retail margin positioning data shows a very sharp an upturn in yen short positions since the day after the June FOMC meeting. So yen out-performance on an escalation of ‘Grexit’ risk as these positions are unwound is a scenario to watch out for.”