The Tankan index will be significant on Monday local time as it will have a significant impact on economic optimism and interest rate expectations
The Bank of Japan remains concerned that interest rates are too low from a medium-term perspective. The difficulty for the bank is that the economic data has made it difficult to a further policy tightening.
The headline inflation index, for example, has remained subdued with core consumer prices falling 0.1% in the year to August.
Evidence of a robust economy would make it much easier for the bank to raise interest rates and a strong Tankan index could give the bank a green light for an October interest rate increase.
The latest industrial data was stronger than expected with a 3.4% production increase for August.
The survey evidence has been very mixed over the past few weeks. The monthly Tankan index fell to a two-year low while other surveys have suggested that confidence strengthened during the third quarter
Overall, with markets expecting a slightly lower reading from 23 last time, the yen should strengthen significantly if there is a headline Tankan reading above 25.
In contrast, the yen will tend to weaken on a figure below 20. The net risks suggest that the yen will react more strongly to a higher than expected figure.
source: http://www.forexfactory.com
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