The Bank of Japan’s fourth quarter tankan survey is due at 2350 GMT on Thursday. Big manufacturers’ confidence in business conditions in Japan stood at a decade high in the third quarter, with fourth quarter projections indicating that positive momentum is to be maintained.
The Tankan big manufacturers index is expected to come in at 24 in Q4, reflecting its fifth consecutive quarterly rise and standing at its highest in 11 years. This compares to Q3’s 22. Strong demand from foreign markets, in conjunction with corporate profitability exceeding expectations, are seen as boosting business confidence in the world’s third largest economy. The Tankan big non-manufacturers index, a separate measure gauging sentiment in the services sector, is anticipated to remain at 23, its highest in two years.
It is not just overseas demand supporting sentiment though, but domestic as well. In the third quarter of the year the Japanese economy grew by 2.5% on an annualized basis, far exceeding forecasts of 1.5% and recording its seventh straight quarter of positive economic growth, the longest such stretch since the period between Q2 1999 and Q1 2001 during which the Japanese economy grew for eight straight quarters. The 2020 Tokyo Olympic Games are also promoting – and are expected to continue doing so – activity and sentiment in the nation.
Data on capital expenditure by big corporations are expected to show an increase in spending for the current fiscal year to March 2018 by 7.5% on an annualized basis, slightly below Q3’s respective number of 7.7%.
Beyond the aforementioned releases, the respective data for small manufacturers and non- manufacturers will also be made public at 2350 GMT, with polls projecting an improvement in the numbers relative to the third quarter.
The tankan survey results may not be perceived as a typical market mover, but still more upbeat figures could lend some support to the yen. A strengthening Japanese currency relative to the US dollar – resulting in a weakening dollar/yen pair – could find support around the current level of the 200-day moving average at 111.63.
On the other hand, weaker-than-anticipated results could spur forex market participants to push dollar/yen higher. In such an event, the pair could meet resistance around 112.86, this being the current level of the 50-day moving average. Notice that price action is currently taking place close to this level. Stronger bullish movement might meet a barrier around December 12’s one-month high of 113.74. Also, one should not disregard that beyond the release, US-related news definitely have the capacity to steer the pair in either direction.
December 17 (2350 GMT) will also see the release of Japanese trade data – exports, imports and trade balance – for the month of November. For the most part throughout 2017, year-on-year exports and imports grew by double digits in the months that preceded.
