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2 Apr 2014
Japan's Tankan disappoints; BoJ to hold fire - Nomura
FXStreet (Bali) - Business confidence was weaker than market expectations, according to the BOJ Tankan published yesterday, notes Yujiro Goto, FX Strategist at Nomura.
Key Quotes
"The current DI for large manufacturers improved to +17 from the previous quarter (+16), but undercut market expectations (+19). While the current DI for large non-manufacturers was in line with the market consensus (+24), forecast DIs have deteriorated more than expected for both large manufacturers and non-manufacturers. The result suggests firms are more pessimistic about the economic outlook after the sales tax hike. Any economic slowdown in Q2 could be bigger than we expected, albeit temporary."
"At the same time, the survey result suggests companies are still likely to feel the need to increase production capacity. Fewer companies replied that they judge their production capacity is excessive, both for actual and forecast DIs, suggesting capex momentum is likely to remain relatively strong beyond the sales tax hike."
"More companies also feel their employment level is insufficient than in the previous quarter, suggesting the labour market has tightened further over the past three months. While forecast DIs for employment conditions are lower than actual DIs, the declines are relatively small, suggesting positive momentum in the labour market is likely to continue, putting gradual upward pressure on inflation and wages. An expected improvement in the job market would support risk sentiment among retail investors, encouraging them to shift into risky assets."
"While business sentiment was weaker than expected, we think the BOJ is still likely to leave its policy unchanged in April. While the BOJ Tankan can boost market expectations of BOJ easing, only 4% of clients expected the BOJ to ease on 7-8 April, according to our client survey. Thus, any decline in USDJPY should be limited after the BOJ meeting next week, even though the BOJ Tankan disappointed the market, in our view."
Key Quotes
"The current DI for large manufacturers improved to +17 from the previous quarter (+16), but undercut market expectations (+19). While the current DI for large non-manufacturers was in line with the market consensus (+24), forecast DIs have deteriorated more than expected for both large manufacturers and non-manufacturers. The result suggests firms are more pessimistic about the economic outlook after the sales tax hike. Any economic slowdown in Q2 could be bigger than we expected, albeit temporary."
"At the same time, the survey result suggests companies are still likely to feel the need to increase production capacity. Fewer companies replied that they judge their production capacity is excessive, both for actual and forecast DIs, suggesting capex momentum is likely to remain relatively strong beyond the sales tax hike."
"More companies also feel their employment level is insufficient than in the previous quarter, suggesting the labour market has tightened further over the past three months. While forecast DIs for employment conditions are lower than actual DIs, the declines are relatively small, suggesting positive momentum in the labour market is likely to continue, putting gradual upward pressure on inflation and wages. An expected improvement in the job market would support risk sentiment among retail investors, encouraging them to shift into risky assets."
"While business sentiment was weaker than expected, we think the BOJ is still likely to leave its policy unchanged in April. While the BOJ Tankan can boost market expectations of BOJ easing, only 4% of clients expected the BOJ to ease on 7-8 April, according to our client survey. Thus, any decline in USDJPY should be limited after the BOJ meeting next week, even though the BOJ Tankan disappointed the market, in our view."