Weak yen brightens Japanese manufacturers’ outlook

  • Japanese industry is growing steadily more confident as a weak yen and a stronger global economy offer new hope of escaping deflation.

    The Bank of Japan’s Tankan index for large manufacturers, the country’s most closely watched measure of business conditions, rose from +8 to +10 in March — its highest for 18 months.

  • The figure suggests big companies are starting to believe the yen’s fall is durable and will lead to rising exports, prices and investment in Japan.
  • But confidence remains lower than levels recorded during the early days of Abenomics in 2013, highlighting the long road still ahead for Japan to escape from more than two decades of on-and-off deflation.
  • Business confidence has improved in Japan since the election of Donald Trump as US president last November, triggering a fall in the yen from close to ¥100 against the dollar to a new range of ¥110-¥115.
  • The Tankan is a quarterly survey, similar to ISM polls of purchasing managers in the US. It samples more than 10,000 companies with a response rate of nearly 100 per cent. Compilers subtract the percentage of respondents reporting bad business conditions from those reporting good to give indices ranging from -100 to +100.
  • Japan’s unreliable statistics on consumption and output, which are prone to large revisions, mean the BoJ relies heavily on the Tankan to track the business cycle.
  • Sentiment rose most strongly in Japan’s core export industries. The index for general machinery rose by 11 points to +25, for production machinery by seven points to +17, and for motor vehicles by eight points to +18. That was partially offset by drops in commodity sectors, notably a 16-point fall for the petroleum industry to +6, reflecting a fresh slide in the global oil price. Sentiment in the services sector rose by 2 points to a reading of +20. There was an 8 point rise to +17 for hotels and restaurants, possibly hinting at a pick-up in consumer spending, but a 13-point drop to +31 for communications, as the government puts pressure on mobile phone companies over tariffs. The index for all companies rose by 3 points to +10.
  • With the unemployment rate down to 2.8 per cent, companies reported increasingly severe labour shortages, especially for smaller employers in the service sector. The index for companies reporting they have adequate staff dropped by 4 points to -25.
  • The BoJ hopes that an increasingly tight labour market will lead to upward pressure on wage, feeding through to consumer prices. That in turn would help inflation escape from its current levels close to zero.

Yen Hits Four-Month High as Skepticism Grows Over Trump Policies

  • The Japanese yen rose to its highest level in four months against the dollar on Wednesday in Asia, prompted by greater skepticism among investors about whether President Donald Trump will be able to stimulate the U.S. economy.
  • The potential for trade friction following a weekend meeting among the Group of 20 industrialized and developing nations also clouded the global economic outlook and boosted the appeal of the yen, a safe-haven asset in times of economic uncertainty. At the request of the U.S., finance ministers in the G-20 dropped a longstanding clause criticizing protectionism.
  • The yen rose against the U.S. dollar in the hours immediately after Mr. Trump’s election victory, then fell sharply on expectations for an economic-stimulus policy in the Trump administration.
  • The president has promised to introduce tax cuts and spur $1 trillion in spending on U.S. infrastructure construction, but he hasn’t outlined a detailed plan.
  • Expectations for the changes began to weaken after Mr. Trump struggled to round up support for a health-care bill headed for a vote this week in the Republican-led House.
  • Japanese Finance Minister Taro Aso on Wednesday said Tokyo should maintain close communication with the U.S. and continue its efforts to keep the yen stable. “Excessive sharp movements, up or down, could have a considerable impact on the economy,” Mr. Aso said in Parliament. He brushed aside speculation Washington might pressure Tokyo to guide the yen higher.
  • Until recently, the widening interest-rate gap between the U.S. and Japan was supporting the dollar. The Federal Reserve has been raising rates while Japan’s central bank has been keeping the yield on 10-year government bonds close to zero. However, when the Fed raised its benchmark rate last week, its projections for further tightening disappointed some investors who had bet on a faster tightening pace. That led to drops in Treasury yields and some dollar selling.

Trump worries send yen soaring to 4-month high

  • The Japanese yen hit a four-month high against the greenback on Wednesday, complicating the export-oriented country’s efforts to weaken the currency.

    Jitters over President Donald Trump’s ability to push through pro-business policies triggered a sharp stock sell-off on Tuesday and sent investors scrambling for haven assets.

  • The flight for safety continued on Wednesday, sending the yen 0.9 per cent higher to 110.76 per dollar.
  • That’s its strongest level since November 18, extending the currency’s gains so far this year to over 5 per cent.
  • The dollar’s retreat comes amid mounting nervousness over a key vote in Congress on Thursday over Mr Trump’s plans to dismantle Obamacare.
  • Signs that the president might not be able to rally the support needed to pass the bill have raised questions over whether he would be able to deliver on the expected tax cuts, stimulus spending and deregulation that have powered stock markets to record high after high this year.
  • The dollar has been also been pressured by unexpectedly dovish comments last week from the Federal Reserve over the pace of future interest rate hikes.