USD/JPY Remains Under Pressure Following Mixed Tankan Data

Japanese Yen, USD/JPY, Tankan – Outlook and Capex Talking Points

• Tankan Large All Industry Capex comes in at 9.6%, against a consensus estimate of 7.2%
• Tankan Large Manufacturing comes in at 14, just below the expected reading of 15
• USD/JPY remains on the charge, making a clean break above the March swing high

The Bank of Japan released key economic data on Thursday morning, highlighting the ongoing rebound across the domestic manufacturing sector. While the Tankan Large Manufacturing Index and Outlook reports both posted significant increases over their Q1 readings, they fell short of market estimates. The Tankan Large Manufacturers Index produced a reading of 14 for Q2, against a consensus estimate of 15. The Tankan Large Manufacturers Outlook posted a larger miss, coming in at 13 vs. an expected reading of 18. Despite missing expectations, the readings reflect significant improvements from the prior readings in Q1. Despite a strong capex reading from manufacturers, markets may gyrate as they process this mixed bag of results along with the state of the Japanese recovery.

Japanese Economic Calendar

Courtesy of the DailyFX Economic Calendar

Despite a robust global economic recovery from the pandemic, the Japanese economy continues to struggle in relation to its developed peers. Private sector activity declined in June as the country deals with rising cases ahead of this summer’s Olympic Games. While virus-related restrictions have eased, fears remain that the summer games may spark a resurgence in COVID cases. With just 11.5% of Japan’s population vaccinated, serious threats remain for the Japanese economy. The recovery in Japan also differs from the rest of the world – ultra-loose monetary policy is here to stay. Monetary stimulus will not be withdrawn unlike in other G10 economies, and deflationary pressures are likely to remain prevalent in a post-COVID Japan.

USD/JPY Daily Chart

Chart created with TradingView

The Yen remains under pressure as investors continue to flock to the Greenback following the June FOMC meeting. A combination of Bank of Japan dovishness and American economic strength has propelled USD/JPY from a January low of 102.59 to current levels around 111.11. Having made a clean break above the March swing high of 110.97, continued bullish momentum may propel the pair towards the pre-pandemic high of 112.23. Eyes will be cast to the US for jobless claims and NFP data later this week, which may prove to be the additional tailwinds that will sustain the rally in USD/JPY.

— Written by Brendan Fagan, Intern for DailyFX

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter