By: Dr. Mike Campbell
The Yen has seen a depreciation of 6.3% against the US Dollar since the start of the year which is good news for Japanese exporters since their products are becoming more competitive in importing markets. The Yen is currently trading at 82.14 to the Dollar having come off an all-time low of 76.64 in October 2011. Whilst, from a Japanese perspective, the depreciation is a move in the right direction, the Yen is still way off its ten year average of 104.88. This may go some way to explaining why business sentiment is still negative in Japan.
The Bank of Japan commissions the Tankan survey which canvases the opinion of thousands of businesses – about 210000 of them – with capital above the 20 million Yen mark. According to the Bank of Japan: “The survey is conducted to provide an accurate picture of business trends of enterprises in Japan, thereby contributing to the appropriate implementation of monetary policy.” The survey is done on a quarterly basis. On the basis of better economic data emerging from the USA (notably better unemployment data which has just about hit a three year low), the resolution of the acute phase of the Greek sovereign debt crisis and the weaker Yen, it had been anticipated that the survey would fall to a value of minus 1 (a value of zero indicates neither optimism or pessimism), but in the event, it came in at minus 4, the same value as at the end of last year.
The Bank was expected to press ahead with further financial easing measures even if the more optimistic level had been reached. The fact that business sentiment is still negative probably makes this move more certain. Financial easing is likely to drive further depreciation of the Yen against other major currencies. The move had been anticipated for the end of the month, but the most recent Tankan data may move this forward.