Japan - it’s not all about Tankan

In past five trading days, Japanese benchmark stock index has down performed most of the global indices, declining more than -7.5%. While Nikkei tumbled, Yen strengthened almost 2% against Dollar. All this out and down performance can be attributed to a single economic release on late Thursday (GMT), Tankan survey.

Tankan Survey is similar to United States’ ISM and is one of the most reliable robust indicators released from Japan.

Tankan survey covers about 10930 enterprises across Japan, covering both manufacturing and no-manufacturing industries as well as firms from all large, medium and small space. Moreover about 50% of the enterprises are from small in nature, which makes it a well indicator of overall economy.

Latest survey showed, confidence deteriorated in every segments of the economy but more so for the manufacturing sector. Large manufacturers’ confidence deteriorated by 50% in span of three months. Small manufacturing index also dropped from zero to -4. While non-manufacturing held up well but deterioration was quite visible.

In the complete report, available here http://www.boj.or.jp/en/statistics/tk/yoshi/tk1603.htm/ deterioration is visible in all, supply/demand, inventories, sales, profits, capex, employment except financing conditions.

Still, is that one report was enough to cause such turbulence?

It is actually the chilling thought report instilled that is behind this major move.

“Bank of Japan’s monetary stimulus is failing to boost both economy and inflation”.

Interest rates were already at low, even before BOJ introduced stimulus back in 2012, so most of the benefits came through foreign exchange channel. With Yen strengthening more than 8% this year, policy failure thoughts are likely to keep haunting the Japanese market this year, especially if the strengthening comes in the back of negative rates.

Yen is currently trading at 111.4 against Dollar, while Nikkei is at 15710.