HomeContributorsFundamental AnalysisBoJ's Quarterly Tankan Survey Showed Japanese Firms Turn More Optimistic

BoJ’s Quarterly Tankan Survey Showed Japanese Firms Turn More Optimistic


Markets entered a consolidation phase last Friday following exhaustion moves earlier in the week. For core bonds it meant an end to a fierce sell-off with EMU September inflation numbers (0.3% M/M & 4.3% Y/Y for headline; 4.5% Y/Y for core) backing the case for an October skip in the ECB’s rate hike cycle and helping to put a floor below EMU core bonds in the short term. Daily changes on the German yield curve ranged between -5.2 bps (30-yr) and -11.3 bps (5-yr). The belly of the curve outperformed the wings. German Bunds did better than US Treasuries but this was partly due to the fact that those US bonds already rallied during Thursday evening’s US session. US yields lost a more moderate 0.4 bps (30-yr) to 1.5 bps (3-yr). August US PCE deflators (0.4% M/M & 3.5% Y/Y for headline; 0.1% M/M & 3.9% Y/Y for core) also suggest a pause in the bearish bond trend for now. With rates correcting, equity markets got some breathing room. Main European indices ended with gains of around 0.5%, though well off the intraday highs. From a technical point of view, Friday’s action suggests that it will remain a tough climate for riskier assets. US stock markets started on a positive footing, but lost up to 0.5% (Dow Jones) in the close. The dollar’s uptrend since mid-July remains in place despite the correction at the end of last week. The trade-weighted greenback registered an intraday low at 105.66 before closing near unchanged at 106.17. EUR/USD reached an intraday top at 1.0617 before closing at 1.0573.

US Congress avoided a government shutdown, passing legislation with bipartisan backing to extend funding through mid-November. They help a better start in Asia though China is closed for the week. US Treasuries gap open lower. Today’s eco calendar centers around the US manufacturing ISM which kickstarts a data-heavy week which also sees JOLTS job openings, ADP employment, the services ISM, weekly jobless claims and payrolls. Fed Chair Powell participates in a roundtable discussion but it’s unclear whether he’ll touch on monetary policy or note. We start the week with a consolidation view in which core bonds can recover somewhat and in which the dollar’s momentum fades. From a risk point of view, better-than-expected US eco releases can easily reignite the sell-off given that markets aren’t aligned with Fed indications on one more rate hike later this year.

News and views

Former Prime Minister Fico’s Smer Party came out as the biggest at Saturday’s Slovak parliamentary elections. It secured 22.94% of the vote. Fico has a pro-Russian stance and wants to end military aid to Ukraine. He also opposes to some EU policies including on migration and climate. The closest contender of the Smer party, the pro-EMU PS party of European Parliament vice president Michal Simecka, received a below expected 17.96% of the votes. The Social democratic ‘Hlas’ (Voice) party of former Prime Minister Pellegrini, obtained 14.7% of the votes. At 68.51%, the voter turnout was high compared to previous elections. President Zuzana Caputova today is expected to appoint Fico to form a new government. Analysts expect Fico to try to from a government with his Smer Party, the Hlas party and the Nationalist SNS party. This coalition would have a majority of 79 seat out of 150 in total in Parliament.

The BoJ’s quarterly Tankan survey showed that Japanese firms turn more optimistic on activity for the second consecutive quarter. The headline large manufacturing index improved from 5 to 9. Also the outlook in the sector improved from 9 to 10. The large non-manufacturing measure improved from 23 to 27, a level not seen since the final quarter of 1991, as the sector rebounded after authorities lifted corona-restrictions. Especially companies in the accommodation, eating and drinking industry showed high levels of confidence. The outlook for the non-manufacturing sector also improved (21 from 20) but less than expected. Sentiment among smaller companies basically stabilized. According to the Tankan survey, Japanese corporations take into account a level for the yen at USD/JPY 135.75 for this fiscal year. With respect to inflation, Japanese corporates still see consumer price inflation at 2.2% three years ahead. At USD/JPY 149.75 the yen this morning continues its weakening trend. The Japanese 10-y government bond yield touched a new cycle top at 0.78%.

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