Japan’s consumer confidence not in line with BoJ

Consumer Confidence in Japan decreased to 41.50 in April of 2015 from 41.70 in March of 2015 which is way below our own forecast of 42.5 and the Bloomberg median of 41.8. The headline index is a simple average of four components each measuring outlook for the projections over the next six months. "Overall livelihood", "income" and "willingness to buy durable goods" all fell, but "employment" climbed to the highest since January last year, consistent with annual employment growth of around 1%.

Despite the modest drop in confidence, the BoJ will have been comforted by the renewed rise in inflation expectations. Our calculation of the weighted average increase in prices expected by consumers over the coming year edged up from 2.9% to 3.1%. However, expectations could start to weaken in coming months as actual inflation is set to plunge as last year's sales tax hike falls out of the annual calculation.

Following four straight increases, the small drop in consumer confidence in April is no disaster. What's more, the Bank of Japan will have been pleased by the fact that inflation expectations are holding up.

Derivatives ideas: (EURJPY)

Looking at yen depreciating versus Euro, the bull rallies on daily and weekly charting patterns will resume for some more time duration.

Mid-day European sessions may indicate some shorting signals but on end of the day basis we are still slightly bullish. Shorts for intraday basis but buy on dips should be employed for below strategy.

Option strategy: Call ratio spread

We recommend call ratio spread as the pair is likely to remain either sideways or slightly bullish in our view.

Buying call spread in addition to selling more necked call options constitutes this hedging position. The portion should ideally be in the ratio of 1:2 or 1:3 with short time for expiry is preferred.

Breakeven will be at:  short strike price + difference in strike price + net credit