Oct 2, 2007
Global Macro Outlook: Japan
One of the questions on traders’ minds is whether the Bank of Japan will cut rates before the end of the year. Doing so would definitely strengthen the yen against other currencies. Toshihiko Fukui has been hoping to raise rates at least one time during his time as chief.
On Monday we saw the release of the Tankan Survey. The Tankan Survey is the main indicator of Japan’s business sentiment on the state of the economy. The large manufacturer’s diffusion index came in at 23%, versus a forecasted 22%. This means that the Japanese business sentiment is at a near two year high, signaling strength in the economy.
Last month we saw a slight rise in unemployment, reaching 160,000, but YoY Unemployment decreased 7%.
The BOJ will need more indicative data on the whether the Japanese economy is positive in order to do a rate hike. The money supply data on October 8th will be important to watch in anticipation of the BOJ meeting on October 11th.
The USD/JPY has further to fall in the long run, but for now, traders should focus on technicals. There’s been a lot of profit taking for dollar shorts as of late, boosting the dollar versus most other currencies. Unless we see any more negative US data, this may continue for some time.
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