Japan: Focus shifts on BoJ, post strong Tankan Survey – BBH

Analysts at BBH suggest that Japan's Tankan Survey completes this week's theme of confirmation and strengthening of the synchronized global recovery.  

Key Quotes

“The FOMC and ECB lifted 2018 growth forecasts while not signaling a change in the trajectory of monetary policy.  The large manufacturers in Japan's Tankan survey saw the diffusion index rise to 25 from 22.  It was slightly better than expected and the best in over a decade.  Small manufacturers saw the largest improvement (15 from 10).   The disappointing large all-industry capex plans (7.4% vs. 7.7% in September) did not offset the broader strength.”    

“The Bank of Japan meets next week.  Whatever confusion there may have been over recent remarks by Kuroda has eased.  Some thought that Kuroda was beginning to prepare the market for a change in policy, perhaps a higher target for the 10-year yield.   He referred to concepts that emphasized that too low of interest rates could deter bank lending and profitability, weakening rather than strengthening the financial system.”  

“However, now many have come around to our understanding that it placed in its proper context.  With a new alignment among the BOJ directors, the challenge does not come from the resistance to Kuroda, but those who want to do even more to achieve the inflation target.  The content of refutation has changed.”    

“Meanwhile, the dollar found support at JPY112.00.  There is a $1.2 bln option struck there that expire in New York today.  There are large options struck every 25 pips to JPY113 that will be cut today.”