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Japan – Reuters Tankan poll shows manufacturer outlook less pessimistic, service-sector sentiment three-month high

  
  Analysis
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The Reuters Tankan seeks to track the BOJ report. Reuters is monthly, BOJ Tankan is quarterly.

Japanese manufacturers’ business outlook was less pessimistic in October
service-sector sentiment rose to a three-month high
 manufacturers voiced worry about the protracted trade war and slowdown in China’s economy
some Japanese firms do not see the impact of the global slowdown immediately hurting the economy
Sentiment index for manufacturers minus 5,
  • up two points from the prior month’s 6-1/2-year low of minus 7
  • index is expected to minus 6 in January
service-sector index climbed to plus 25
  • from plus 19 in the previous month
  • led by retailers who have likely benefited from consumers rushing to beat the Oct. 1 sales tax which went up to 10% from 8%
Poll of 504 large- and mid-sized companies, in which 248 firms responded
  • conducted Sept. 26 to Oct. 7

Bank of Japan’s Kuroda on the wires

  
Analysis, Politics
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Via Reuters

Kuroda
  • BOJ will ease without hesitation if chance that economy may lose momentum for achieving price goal heightens
  • Economy sustaining momentum for hitting BoJ’s price goal
  • BoJ must pay more attention than before to heightening risks, particular focus in on the output gap
  • If Oil prices continue to fall and clearly push down Japan’s inflation, that could impact inflation expectations
  • No preconception on what policy decision will be made in October
  • Investors risk aversion easing somewhat due to progress in US-China trade negotiations
  • BoJ can combine, enhance tools which are rate cuts increase in asset buying and acceleration of base money
  • Excessive fall in super-long yields could hurt consumer sentiment by lowering returns of pension, insurance funds
  • Our policy is stimulating economy, but increased scrutiny is needed on cost of prolonged ultra low rate environment
  • Overseas economic slowdown yet to affect Japan’s domestic demand
No hints on whether more QE is coming for October, which is what would have weakened JPY further on the current change in sentiment with China waiving some soybean tariffs.
Interesting line about scrutiny on ultra low rate environment. We are starting to see a move away from monetary policy towards fiscal policy. I think it is reasonable expect this to be the next driver in the FX markets now if conditions remain in an ultra low interest environment.

Japan – Reuters Tankan report – manufacturing index hits lowest since 2013

  
  Analysis
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Reuters Tankan shows Japan manufacturers index -4 in August vs +3 in Jul.y

  • lowest reading since April 2013
  • and this is the first negative reading for the index in over 6 years

Non-manufacturers index +13 in August vs +25 in July

Manufacturers November index seen at +3, non-manufacturers seen unchanged

Commentary via Reuters …nails it:
  • Concerns about weakening global demand intensified
  • growing risk of a U.S. recession
  • Germany’s economy in contraction
  • China’s economy was worsening
  • further soured the outlook for export-reliant economies such as Japan’s
More:
  • “The U.S.-China trade war, Japan’s export curbs to South Korea and the recent yen rises have formed a bottleneck for sales” 
  • “The selling price remains in a downtrend due to expansion of e-commerce markets, while a scheduled sales tax hike keep shoppers on guard against price increases”
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The Reuters monthly poll, tracks the Bank of Japan’s (BOJ) tankan quarterly survey
  • conducted July 31-Aug 14
  • total of 258 firms responded

Roubini: How to prevent a depression

  
Analysis, Education
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An eight point plan to minimise the fallout of another economic contraction.

AMSTERDAM – The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers in 2008. The risks of an economic and financial crisis even worse than the previous one – now involving not just the private sector, but also near-insolvent sovereigns – are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown?

First, we must accept that austerity measures, necessary to avoid a fiscal train wreck, have recessionary effects on output. So, if countries in the eurozone’s periphery are forced to undertake fiscal austerity, countries able to provide short-term stimulus should do so and postpone their own austerity efforts. These countries include the United States, the United Kingdom, Germany, the core of the eurozone, and Japan. Infrastructure banks that finance needed public infrastructure should be created as well.

Second, while monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures. (more…)

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